Business litigation can jeopardize your long-term plans and could potentially end your company. Preventing disputes before they develop is invaluable. Owners and partners must create a buy-sell agreement upon the business’s inception. Buy-sell agreements outline who will control the company and how the business gets managed if something happens to one of the owners.
For example, a married couple who co-own a business can have a buy-sell agreement declaring who will own the company and how that will happen if they divorce. In other circumstances, imagine the potential complications when one of your business partners passes away unexpectedly. The deceased’s shares may get passed down to a surviving spouse or other family members. These people may not have the desire or ability to run the business that they now partially own. Furthermore, they could also choose to sell the shares they inherited to one of your competitors.
By having a buy-sell agreement in place, you are circumventing the potential for disputes from the surviving partners and beneficiaries, which can force you to reallocate time and money for the litigation that may ensue.
How a Buy-Sell Agreement Protects You From Disputes
A buy-sell agreement is a type of contract, and it is legally binding. It prevents the current owners from losing control of the company if another partner:
- Declares bankruptcy
- Passes away
- Becomes incapacitated
- Decides to leave the company
Take notice of the last bullet point. Buy-sell agreements are effective ways to prevent disputes when you and your business partner decide to part. Your buy-sell agreement could include that you can purchase the other partner’s shares and how the value gets determined. This is also why business owners choose to add a valuation clause into their buy-sell agreement, which may include:
- The method for determining the company’s value
- Which organization or expert will value the company
- If the value will be expressed in terms of “fair value” or “fair market value”
Business partners may choose to take out life insurance policies on one another to have the funds to pay for the other person’s stake in the company.
Buy-Sell Agreements for Sole Proprietors
Although we discussed how these agreements work amongst business partners, sole proprietors can benefit from them too. These owners can designate an employee or senior management team member who will purchase the company and run it in the original owner’s absence. This protects the business’s employees because the company will not be left hanging in the balance while the deceased’s person’s company passes through the probate process—which could last several months to a year.
The Cueto Law Group, P.L.
An effective contract minimizes risk and allows business owners to work towards long-term goals in the face of uncertainty. The attorneys at The Cueto Law Group, P.L., have extensive experience developing contracts and agreements for clients in various industries. As one of Miami’s leading law firms, we are committed to helping you and your business by delivering client-focused advice and cost-effective strategies. Contact The Cueto Law Group to schedule a consultation.
Business litigation can jeopardize your long-term plans and could potentially end your company. Preventing disputes before they develop is invaluable. Owners and partners must create a buy-sell agreement upon the business’s inception. Buy-sell agreements outline who will control the company and how the business gets managed if something happens to one of the owners.
For example, a married couple who co-own a business can have a buy-sell agreement declaring who will own the company and how that will happen if they divorce. In other circumstances, imagine the potential complications when one of your business partners passes away unexpectedly. The deceased’s shares may get passed down to a surviving spouse or other family members. These people may not have the desire or ability to run the business that they now partially own. Furthermore, they could also choose to sell the shares they inherited to one of your competitors.
By having a buy-sell agreement in place, you are circumventing the potential for disputes from the surviving partners and beneficiaries, which can force you to reallocate time and money for the litigation that may ensue.
How a Buy-Sell Agreement Protects You From Disputes
A buy-sell agreement is a type of contract, and it is legally binding. It prevents the current owners from losing control of the company if another partner:
- Declares bankruptcy
- Passes away
- Becomes incapacitated
- Decides to leave the company
Take notice of the last bullet point. Buy-sell agreements are effective ways to prevent disputes when you and your business partner decide to part. Your buy-sell agreement could include that you can purchase the other partner’s shares and how the value gets determined. This is also why business owners choose to add a valuation clause into their buy-sell agreement, which may include:
- The method for determining the company’s value
- Which organization or expert will value the company
- If the value will be expressed in terms of “fair value” or “fair market value”
Business partners may choose to take out life insurance policies on one another to have the funds to pay for the other person’s stake in the company.
Buy-Sell Agreements for Sole Proprietors
Although we discussed how these agreements work amongst business partners, sole proprietors can benefit from them too. These owners can designate an employee or senior management team member who will purchase the company and run it in the original owner’s absence. This protects the business’s employees because the company will not be left hanging in the balance while the deceased’s person’s company passes through the probate process—which could last several months to a year.
The Cueto Law Group, P.L.
An effective contract minimizes risk and allows business owners to work towards long-term goals in the face of uncertainty. The attorneys at The Cueto Law Group, P.L., have extensive experience developing contracts and agreements for clients in various industries. As one of Miami’s leading law firms, we are committed to helping you and your business by delivering client-focused advice and cost-effective strategies. Contact The Cueto Law Group to schedule a consultation.
