It is normal for even the most stable business to undergo personnel changes. This can even include the ownership as partners retire, pass away, pursue other interests, divorce, or file bankruptcy. Business owners or entrepreneurs can plan for these changes by including buy-sell agreements, also known as a business prenup or buyout agreement. These contracts outline what happens when a partner leaves.
Owners can draft the agreements as needed, but these arrangements can also be part of the business plan’s structure. Having it already done and waiting provides peace of mind of knowing what comes next when there are changes in the business.
How do they work?
A buy-sell agreement between partners addresses any future ownership or partnership changes. There are several essential details addressed in these contracts:
- The percentage of ownership
- Whether the other partners buy out the departing one
- Who can buy into the partnership if selling the ownership interest
- Other events that initiate the buyout
Avoids pointless uncertainty
The arrangement’s details inform the decision of all involved parties. It also can avoid unnecessary, time-consuming and costly disputes among the remaining partners. It may even prevent the pointless dissolution of a successful business due to legal or technical issues. Finally, it can avoid unwanted partnerships, shifts in power or other contentious issues.
The best-laid plans
Perhaps the buy-sell agreement is never used, nor does a well-drafted plan consider every option. Nonetheless, buy-sell agreements provide a solid foundation for every business partnership. Those with questions or concerns should speak with an experienced business law attorney. They can draft the agreement while creating partnership contracts or add one to an existing partnership. They can also help resolve disputes tied to these or other agreements.