Do I need one?
So, you start a business with a friend. The early years are great for the two of you, but then a dispute arises and your partner wants out. The two of you can’t agree on how to structure your partner’s exit, so litigation ensues. What should you have done differently?
Something you could have done to prevent that from happening is implementing a buy-sell agreement.
First, what is a Buy-Sell Agreement? A Buy-Sell Agreement, also known as a shareholders agreement, it is a legally binding agreement between the owners of a business that covers what should occur in the event a co-owner dies, is forced to leave the business or chooses to leave the business.
So, to answer the question “Do I need one?” If you have a business with more than one owner, “Yes, you need a buy-sell agreement!”
What are some things you should know about a buy-sell agreement?
- Create one early. The sooner you have one created when you start our business, the better off you and your partners will be. Why? Well, for a few reasons: 1 – This way your business is protected should the unfortunate happen at any time. 2 – The earlier you have one implemented, the easier it is to create.
- Review it often. As your business evolves, changes may need to be made to your agreement. Make a point to review it every couple of years to ensure that the terms of the agreement are still relevant, there are no changes, and each owner is still comfortable with what is stated in the agreement.
- Reduces emotional impact. When you have a buy-sell agreement in place, it can reduce the emotions when there are big decisions to be made.
- There are tax implications. When it comes to a point in your life where you may be ready to sell your half of the business to your partner and move on, there are going to be taxes that need to be paid. However, having a buy-sell agreement in place that is structured properly can reduce the amount of taxes that will need to be paid.
Whether or not you are ready to think about the future of your company, a buy-sell agreement is important when there are multiple owners involved. If you are ready to set up your agreement, contact Sher & Associates today to schedule a consultation. We can assist you in the process and ensure the agreement is done properly and is fair for all parties involved.
Keep in mind that something else every business owner should consider is a succession plan. Watch for an upcoming blog on succession plans and why they are important.
Sher & Associates, P.C. is a law firm located in Kutztown that can assist you in any of the following areas: business law, real estate law, and estate planning. We assist many individuals, businesses and families in and around Fleetwood, Blandon, Topton, Hamburg and Oley.