If your business has at least two owners, whether a partnership, limited liability company, or corporation, do not neglect to speak to an experienced attorney about a buy/sell agreement. Also known as a buyout agreement, this contract binds you and other owners to the disposition of an owner’s shares when the owner wishes to sell, dies, or is forced out.
Generally, other owners should purchase the departing owner’s shares or membership, but disputes are likely without a written agreement in place. As such, it is crucial to consult a New York buy/sell lawyer at Sparks Law to help draft this essential contract as soon as possible.
A redemption buy/sell agreement allows the business to purchase the departing owner’s interest. A cross-purchase agreement allows other owners to purchase the interest. All owners can decide on a price, or they can use a formula to calculate value.
Businesses are meant to prosper, and what one is worth as a startup is probably less than what it could be worth in the future. For owners to agree on a price, they must reassess it regularly to ensure it is fair.
Owners can also use a formula to determine how much a departing owner’s interest is worth. The formula could be based on the company’s book value with adjustments, such as accounting for bad debts, or it could be based on an earnings multiple.
Owners can bring in professional appraisers to determine valuation. If multiple owners remain at a standstill, they also can agree to a silent auction in which all owners write down how much they will pay for a departing owner’s interest, and the highest bidder will win. Because valuation is complicated, a New York buy/sell agreements attorney should be involved in the process.
A contract detailing when owners can purchase other owners’ interests contains triggering events. When one occurs, the other contract conditions kick in, such as to whom and for how much the interest changes hands. Some common triggering events include:
Other triggering events can be incorporated into a buy/sell agreement depending on the owners’ wishes, which they should discuss with a skilled lawyer in the area.
Without a contract in place, fighting among multiple owners could lead to protracted litigation and possibly the company’s breakup. Asking an experienced local attorney to draft a buy/sell agreement is far less expensive than what could happen without one. Additionally, an agreement can work to avoid estate taxes. It is also a way of ensuring that the interests of all owners are protected, as everyone must agree to the buyout terms.
Any business with multiple owners should prepare for the day when one of them wishes to retire, dies, divorces, or is terminated. Without a plan to allow the company or other owners to purchase the departing owner’s interest, expensive litigation and undesirable outcomes could ensue.
Before these problems arise, you can protect your business by calling a New York buy/sell agreements lawyer at Sparks Law. Contact our team and schedule an initial consultation today to get started on a plan tailored to you and your company.