Our firm provides a full range of legal services to the business owner who has formed his or her business and requires legal counseling, document preparation or other legal services as a normal part of its business operations. Such services include contract drafting and review, corporate governance documents such as annual and special meeting minutes, partnership and operating agreements, corporate by-laws, intellectual property (trademarks and copyrights), and real estate and stock sales.

During every phase of your business development. we operate as YOUR IN-HOUSE COUNSEL to provide timely advice and services at affordable rates, without over-lawyering.

SPOTLIGHT ON..... BUY SELL AGREEMENTS!

One basic need that often gets overlooked by the business owner is the Buy Sell Agreement. A complete business plan should include some form of protection of the owners' interests, which is the function of this document.

If you don't have something like this in place, READ ON...

BUY-SELL AGREEMENTS

Every business needs a buyout, or buy-sell, agreement -- a sort of premarital agreement that covers what happens when an owner wants out.

Buyout, or "buy-sell" agreements, are overlooked by many business owners but are critical when you co-own a business with others. When owners have buyout, or buy-sell, provisions in their operating agreement or in a separate document, they are well prepared for the time when one member wants to leave the company, or worse, dies, goes bankrupt, or gets divorced.

What Is a Buyout, or Buy-Sell, Agreement?

Contrary to popular belief, buy-sell agreements are not about buying and selling companies. Instead, they are binding contracts between co-owners of a business that govern what will happen when an owner wants to leave.

A buy-sell agreement controls the following business decisions:

• If a member wants to leave, can he force the other members or the company to buy him out?
• Who can buy a departing member's share of the business? (This may include outsiders or be limited to other owners.)
• What is the price for an owner's interest in the company?
• What other events can trigger a buyout?

It may help to think of a buyout agreement as a sort of "premarital agreement" between you and your co-owners.

What Events Are Covered Under a Buyout Agreement?

Typically, the events that trigger the buyout of a member's interest under a buyout agreement are:

• a member's retirement or resignation;
• an attractive offer from an outsider to purchase a member's interest in the company;
• a divorce settlement in which a member's ex-spouse stands to receive a membership interest in the company;
• the foreclosure of a debt secured by a membership interest;
• the personal bankruptcy of a member; or
• the disability, death, or incapacity of a member.

Why You Need a Buy-Sell Agreement

It's a huge mistake to ignore the fact that sooner or later your circumstances will change. The odds are that a member will want to leave the company before the other members are ready to sell or close the business down. Without a buyout agreement, when one member leaves, the company might be automatically dissolved, forcing the assets to be sold and divided among the members. Or, if the other members wish to continue the business, without an agreement, there is no contract that says whether a departing member must be bought out, and for how much. This can lead to serious personal and business discord -- perhaps even court battles and the loss of the business.

A buyout, or buy-sell, agreement also places controls on who can buy a membership interest in the company and whether a majority of members must approve of a new member. Without this provision, another member could sell his share to someone you would rather not share a business with.

As an added benefit, sitting down with your co-owners to agree ahead of time how to handle the buyout of a departing member's interest can lead to an honest and open relationship of trust between co-owners.

Creating a Buy-Sell Agreement

A buyout agreement can be made up of several clauses in your written operating agreement or it can be a separate agreement that stands on its own. Please contact us to discuss the preparation of this crucial document for you!