Plan for your Businesses Future
A Buy-Sell Agreement contains the terms of a stockholder’s/member’s departure from the corporation/limited liability company. It should be prepared at or near the entity’s formation when there is a level playing field between/among the stockholders/members, and before any stockholder/member has decided to leave or passes away.
The Buy-Sell Agreement should contain the following:
- How the price is to be determined: by a CPA’s evaluation? By an annual determination by all stockholders/members?
- How the price will be paid: Cash? Promissory Note? Key man life insurance?
- What events trigger a buy-out besides death and a stockholder/member’s decision to leave?
- Whether the Buy-Sell Agreement should contain a non-competition clause so that the departing stockholder/member cannot immediately start another business in direct competition with the existing business.
- Whether active participation in the corporation/limited liability company is required and, if it is, whether the remaining members have the authority to require the departure of a stockholder/member who is no longer active. A typical provision may state “Whereas the undersigned Stockholders, being all of the Stockholders of the Corporation, desire to provide for the purchase and sale of their shares of the Corporation held by them in the event of their death, retirement, withdrawal or termination of employment with the Corporation.”
- Having a Buy-Sell Agreement in place minimizes arguments over the price to be paid to the departing stockholder/member and prevents a surviving spouse from inheriting and stepping in to run the corporation/limited liability company in the place of the deceased stockholder/member.
We can advise you regarding Buy-Sell Agreement issues and drafting or reviewing same.