Why Every Business Partnership Needs a Buy-Sell Agreement

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A buy-sell agreement is a legal agreement that determines what happens in a situation with co-owners in the event of their permanent absence. If you are operating a successful business with your partner, but something happens to one of you, then it would be beneficial to have a buy-sell agreement already set in place. You don’t want to watch your commitment and efforts to sustain your business diminish. Here are the reasons why you need a buy-sell agreement for your business:

It’s good for your business                                                                          

A buy-sell agreement is advantageous whether you are a partnership, small or large corporation, or LLC. The need for this agreement can depend on how many owners there are and if anyone is ready to invest or take over your business. It is created specific to your business and your business’s needs. There are several different formats so you need to make sure to design one that will work for you. It is important to speak with an attorney about your options and to have an agreement in place before issues present themselves in order to smoothly resolve conflicts.

They have several benefits

1. Negotiation and decision making

  • Buy-sell agreements make negotiating and decision making easier for the future. All of the important financial decisions are figured out beforehand   in case something happens to one of your business partners. It may be difficult to come to a decision and it can take some time. The deliberating is done ahead of time instead of waiting until a crisis arises. People are usually under stress and pressure in these situations and it does not make reaching a decision any easier.

2. Protection

  • They are a form of protection so there is no uncertainty or questions when you find out your business partner can no longer run your company with you. Your company will be protected and secure in the case of any unforeseen events. These agreements can also ensure your business partner doesn’t give their share of the company to someone else who you wouldn’t want running your business.

3. Worth

  • They are crucial to make sure the business maintains its worth and that its value is not sacrificed or compromised. Your company could easily be devalued if one of your partners leaves and causes more problems for the business from their personal struggles. You may end up losing money if you need to sell your business because of them. A buy-sell agreement allows you to avoid this and could save your business relationship with the other partner.

4. Contract

  • Everything that is agreed upon will be in writing and each business partner must comply with the contract. This type of agreement is highly advantageous and will you save you time and money in the long run. It is important to have agreements as pivotal as this one in writing so each partner clearly understands what actions need to be taken.

5. Questions answered

  • Will my business partner’s spouse take over? Does he or she own the business if something happens to me? Is it worth less now that one of us can no longer be a business partner? These questions won’t need to be asked if something happens to one of your business partners. They will be asked beforehand when you are designing the custom buy-sell agreement for your business.

They can be insured

You can guarantee your business is in the right hands if you insure your buy-sell agreement with “key person” insurance. This will protect the business if the owner leaves the business due to unexpected circumstances. The business can easily hire a new person to take the owner’s place and use the insurance funds to prepare and train the new owner for their role. There are so many events that can impact a person’s ability to do their job. These can include, but are not limited to:

  • Debt
  • Divorce
  • Retirement
  • Disability
  • Death

Insurance ensures that your business will be taken care of in the event that you cannot take care of it yourself. After all, you want the best for your business, especially if you’ve put a lot of work into it – you don’t want to see your hard work disappear.

It is key to remember that you update your buy-sell agreement every few years because every business can undergo change over time whether it be struggle or growth. It’s always important to discuss this information with an attorney before you begin the process so you know what to expect. You ultimately want to protect your business with a buy-sell agreement and make sure your business is prepared for anything that could happen in the future.

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