“Starting a small business takes work” may be the greatest understatement of all time. Entrepreneurs have a lot on their plate and each day brings its own challenges and minor meltdowns. While every business is different, there are some common legal services that all small businesses should invest in before opening their doors for the first time. Here is a quick overview of one of those documents called a Buy-Sell Agreement.
What is a Buy-Sell Agreement?
A buy-sell agreement is a legally binding statement that outlines a company’s course of action if a co-owner dies or leaves the business for any reason.
When Should a Business Get a Buy-Sell Agreement?
Any new company should have a buy-sell agreement drafted by a business lawyer the moment it is formed or as soon as possible thereafter. Think of it as a prenuptial agreement between business owners – it should be in place before making things official.
Why is it Important?
A buy-sell agreement outlines how the owners will value, transfer, and protect their stock within the company. The agreement also provides a road map for business owners in the event that illness or death leaves them unable to perform their duties. Having this agreement in place before the business opens ensures the owners have a strategy for addressing these issues before they become a larger problem.
Are There Different Types?
The three basic types of buy-sell agreements are:
- Redemption Agreement – The business is required to purchase the departing owner’s share.
- Cross-Purchase Agreement – The remaining owners are required to purchase the departing owner’s share.
- Hybrid-Agreement – The departing owner’s shares are first offered to the other owners then the business must purchase them.
Before you start your business, contact the small business lawyers at KTF Law Firm to ensure that you are best prepared. Trust our Minneapolis lawyers to walk you through each step and position your small business for success. Contact us to set up your small business consultation with one of our Minneapolis attorneys today!