Preparing for the unexpected is key to running a successful business. If you are the co-owner of a company, it’s vital that you and your partner have a legally binding contract in place to protect you and the business, should a major life event occur (i.e. you or your partner passes away, becomes disabled, retires, or leaves the company).
- What Are the Basics of a Buy-Sell Agreement:
A buy-sell agreement is a legally binding contract that outlines your rights to buy or sell your interest in the business. For example, in the event of your partner’s death, the agreement may govern that you have the right to purchase your co-owner’s share of the business, meaning you retain control of the company without it going into the hands of the deceased’s spouse or family. It also identifies the agreed-upon price you (and your partner) can sell your share of the company and to whom.
- Why Do You Need One?
Without an agreement in place, you run the risk of damaging your company’s reputation, disrupting sales/production, and not being compensated for your shared assets, should you decide to exit the business. Here are three reasons how a buy-sell agreement can protect you, your family, and your company’s future.
- Market Value: If you or your partner’s family are suddenly forced to find someone else to purchase the business, the sale price will likely fall below the company’s estimated worth.
- Closed Doors: If your partner passes away or becomes disabled, you may find yourself contesting your rights as the owner of the business. This means you’ll spend more time in court and less time running the business. And if your company suffers as a result, you may find out there’s no business to return to in the end.
- Fair Compensation: If you don’t have an agreement that specifies a buyer for the business or how much the company can be sold, you may not receive fair compensation for your share of the business once the company is sold. And if you are the one who passes away, this can also affect the compensation your family would receive in your absence.
- How Can You Start the Process?
Contract drafting can be challenging, so it’s best to have an experienced attorney there to review and provide expertise in business law. At KTF Law Firm, you’ll find support and the business legal services you need to safeguard your investments and company assets. Contact our Minnesota law firm today, and we’ll be happy to answer your questions, assist in the drafting of an agreement, and help your company thrive even when the unexpected happens.