Buy-Sell Agreements: an Overview

Our Cambridge business lawyers know that business owners are often better at managing their core business than they are at placing a value on that business as an ongoing enterprise. But just what the worth of a business is, is one of the single-most-important matters on which its owners need to focus. And the best way to bring this into focus is to develop a plan for the disposition of the business at critical junctures such as the death or departure of a co-owner. The importance of such business planning can best be quarterbacked by the guidance of a Cambridge business lawyer.

A skilled Cambridge business lawyer can be of tremendous help in developing a Buy-Sell Agreement with the client. Such an instrument can provide the specific guide-path to disposing of a co-owner’s shares of stock in a corporation, or membership interests in a limited-liability company (an LLC). Considering the typical circumstances when business buyouts occur can bring the realities home ever so clearly. Consider two middle-aged women who own a chain of retail stores. They are fifty-fifty partners (co-members, actually) of the LLC which is the entity that owns and operates the stores. One partner unexpectedly dies. In the absence of a Buy-Sell Agreement, the surviving partner suddenly realizes she has a new, untended partner: her deceased partner’s husband. Because the original partners equally shared in the management of the business, the husband now wishes to be consulted in every business decision that the survivor must make.

If, however, the original partners had had their Cambridge business Lawyer draft a Buy-Sell Agreement, they could have had in place at the time of the loss of the deceased partner, a solid, binding agreement covering this very situation. Among the agreed-upon provisions would be the overall value of the business, or perhaps a formula to arrive at that value. In addition there might be an agreed commitment by each partner that upon her death, her estate will be obligated to sell (and her surviving partner obligated to purchase) her fifty-percent interest in the LLC. This formulation is called a cross-purchase agreement because of the reciprocal commitments agreed to.

A Buy-Sell Agreement can be used to prescribe alternate methods of how the interests are purchased. For instance, instead of the foregoing scenario in which the surviving partner purchases her deceased partner’s interest, the parties could have agreed to require that the business itself, in this case their LLC, make the purchase. Such an approach is referred to as an entity-purchase agreement. This can be appealing in the common instance when the business has greater financial wherewithal than the individual owners. An experienced Cambridge business lawyer can help you through the entire process.

At Ionson Law, our Cambridge business lawyers help business owners create a specific binding contract that protects their mutual interests when one owner leaves the business. If you are a co-owner of a business, contact a Cambridge business lawyer at Ionson Law for assistance in developing your Buy-Sell Agreement.

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