The most important legal document in your business

Buy-sell agreements are among the most common yet least understood business agreements.

Buy-sell agreements are among the most common yet least understood business agreements.

They are agreements between the owners and the company, and many are destined to fail to operate like the owners expect when they need them. Many, in fact, are ticking time bombs, just waiting for a trigger event to explode.

Buy-sell agreements are ownership transition plans in disguise. Some agreements create unintended consequences, while others have become obsolete because of changes in the business, personal life or other circumstances.

If you own all or part of a business – any business – you should know about buy-sell agreements.

Unless you plan to be lucky forever, you’d better have one. Without it, a closely held or family business faces a world of financial and tax problems on an owner’s death, incapacitation, divorce, disagreement with other shareholders, bankruptcy, sale, retirement or voluntary departure prior to retirement.

The cost of a buy-sell is tiny compared to its benefits. A buy-sell agreement can ward off infighting by family members, co-owners and spouses and keep the business afloat so its goodwill and customer base remain intact, and avoid liquidity problems that often arise on these major events.

A buy-sell agreement makes sense for any business entity, including corporations, partnerships, limited liability companies and even proprietorships. These agreements are extremely important to protect your wealth and ensure your family is financially protected upon your departure, voluntary or involuntary.

An example: You and Joe run a hot dog stand as 50-50 partners. You might have a written agreement or a mere handshake.

Joe dies.

Do you still have a business? Is Joe’s wife or child your new partner?

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