Why Small Businesses Should Have A Buy/Sell Agreement

If you own a company with a business partner, you will have likely formed it in a legal fashion. You have growth, you file your taxes on a regular basis and you feel good about it. Suddenly, your business partner is bankrupt or divorced. What is going to happen to his portion of your business? Will it go to his soon to be ex-wife in the settlement? What about his children? Will they have a say in it? Or, do you suddenly own the entire business? How exactly do you go about protecting yourself and the business from such an unforeseen event?

You may wish to consider a buy/sell agreement clause for your business. Think of it as a will or a pre-nuptial agreement type issue. It will lay out how such events will work out if there are such unforeseen circumstances like a death, a retirement, a bankruptcy, a divorce or even a disability of one of the partners or owners. It lays forth what is going to happen to the business when such unforeseen circumstances occur. IT states how such things will be dealt with and if someone must sell their portion of the company and for what price it must be sold for.

Every Business Needs One

While things may be going smoothly for now, it is wise to try and think ahead to any potential circumstance. Create a Buy/Sell agreement that is designed for your specific business and to meet your exact needs. Make provisions as to the portion of the business that can be sold and to whom for what price. Select language that allows for the insurance policy to pay out to a potential sale.

More importantly, this agreement can also prevent the co-owner from transferring their portion of the company to any party that you do not want involved in your company. If the partner in the company should suddenly become divorced the ex cannot take control of their portion of the company unless it is already in the agreement.

Even if no such events occur, this Buy/Sell Agreement is important. If the co-owner is burned out and needs to leave the business, the agreement can detail which share can be sold and to whom. It can include provisional owners and provides shareholder protection in case of any unwanted circumstance.

This agreement is vital to your company. It’s vital to you. It’s vital to your business partner. It should be done as soon as the company is created.

For companies on the North Shore of Auckland, McVeagh Fleming and Co is one of the leading commercial and business law firms. They can help you draft a Buy/Sell Agreement at the time that you form you company.

For more information, go to their website www.mcveaghfleming.co.nz/.