What is a buy sell agreement?
Discover best practices for developing a buy sell agreement.
A buy sell agreement, or buyout agreement, is a contract that explicitly outlines what happens if a partner in a jointly owned business dies, goes bankrupt, retires, or leaves the business for some reason. Think of it like a prenuptial agreement for business co-owners.
Benefits of a buy sell agreement.
Although this may be the last thing you want to think about when going into business with a partner, it’s essential to outline and agree on these terms from the outset. A buy sell agreement benefits your business in the following ways:
- Lays out a clear exit plan: Allows for the equitable transfer of wealth, ownership, and management.
- Helps out heirs: Guarantees a buyer for the assets heirs may not be equipped to manage, and provides cash to pay any estate debt and taxes.
- Safeguards your business legacy: Ensures remaining owners that the former owner’s share of the business will not pass on to someone who isn’t equipped to run the business.
- Creates continuity: Assures customers, creditors, and employees continuity, no matter what turnover ownership may see.
Make sure you consult a legal expert before developing your buy sell agreement to ensure it meets your own business needs.