Get Thee a Buy-Sell Agreement
September 8, 2014
Your part in the business is done, but what happens to the business after your chapter closes? Whether it is finally time to wrap up a long-time family business, the death a business partner, or just starting in your dorm room, you and your business need a succession plan in place to sell your business after you move on to other things. These plans will look different for a sole proprietorship, compared to how they would for a large multi-national corporation, or even a partnership at a professional firm. In this post we will take a glance at considerations for all you sole proprietors out there and discuss the need for a Buy-Sell Agreement.
Sole Proprietorship: The Lone Warrior Needs An Apprentice
You have struck out on your own and profited all these years as the sole owner of your business. You alone have stuck it out and now you want to enjoy some much needed rest and make sure you profit from your investment. There is just one problem: you do not know anyone who will buy your business.
What do you do?
The best start is to look within the company and find a key employee or family member who will be interested and will run the company well into the future. Keep in mind that this does not have to be one person. It can be a group.
You must keep in mind that they must have what it takes to run the business and be able pay you for that privilege.
What if you don’t see anyone? Find them.
Unemployment in this country is staggering. The promise of employment added to virtues of ownership will be attractive to new and experienced workers alike. Time needs to be spent training the chosen candidates how to do the business right. Remember: the criteria above still applies. The candidates must have what it takes to run the business and be able pay you for that privilege.
You have found that perfect candidate or group of candidates to continue your business. Now what?
Get A Buy-Sell Agreement
Once you have found the perfect candidate or group of candidates we need to write down the specifics of the agreement. Buy-sell agreements are the prefect tool for setting this agreement in stone. Forbes writer Robert Woods agrees, “Unless you plan to be lucky forever, you’d better have one.”
The buy-sell agreement (also known as a buyout agreement) is a contract between you and the prospective buyer or buyers of your business. This contract allows your business to survive past your retirement or death. If you become disabled or you die, you or your family will be able to value and eventually sell your stake.[fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][fusion_tagline_box backgroundcolor=”” shadow=”yes” shadowopacity=”0.1″ border=”1px” bordercolor=”” highlightposition=”top” content_alignment=”left” link=”http://executivelp.com/sign-up/” linktarget=”_self” modal=”” button_size=”” button_shape=”” button_type=”” buttoncolor=”” button=”Request Contract Service” title=”Need Contract Drafting, Editing or Review?” description=”We offer flat fee services starting at only $100. ” margin_top=”” margin_bottom=”20px” animation_type=”0″ animation_direction=”down” animation_speed=”0.1″ animation_offset=”” class=”” id=””][/fusion_tagline_box]
In order to have a legally proper buy-sell agreement you must state the following within the agreement: the parties involved, the purpose, commitments, a description of the business interest, restrictions on transfer during lifetime, purchase price, funding, transfer details, and modification/termination provisions. All of these provisions are important, but the most urgent is funding. If you do not find a way to fund the purchase, you or your family may never get paid. That is why it is important to find candidates who have what it takes to run the business and are able pay you for that privilege.
There are other ways to fund the buy-sell agreement in the event of your death. Your business can take out a life insurance policy on you and fund the buy-sell agreement with the proceeds at the time of your death. This allows the business to continue on with the chosen buyer and easily funds the sell. The only catch is that you must have a properly written buy-sell agreement in place to capture all the benefits of this arrangement.
How can I make sure I do all of this right?
Competent attorneys will make your life much easier in this regard. A well drafted buy-sell agreement will not only give you a chance to obtain a willing buyer at a value you desire, but also protect you and your family from legal problems that plague poorly prepared provisions.
If you are contemplating a buy-sell agreement or need a new plan business succession plan in place, contact Executive Legal Professionals at +1.615.669.6566 or online at www.ExecutiveLP.com. Executive Legal Professionals offers business succession planning as well as contract drafting and review services to businesses for flat fees, and ongoing legal services to business on a subscription basis.
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