Buy-sell agreements are often one of the most critical documents for owners of a closely-held business. Buy-sell agreements are meant to accomplish the following:
- Define the value of the owners’ equity interests;
- Spell out the nature of the transaction, including price and terms, when an owner leaves or dies; and
- Identify or assure financing is available when the owner leaves or dies.
When buy-sell agreements are triggered based on some established event, such as an owner leaving or dying, they often create unintended consequences. Not because they are poorly drafted, but many times because they no longer state your current business objectives.
Can you answer the following questions after reviewing your buy-sell agreement?
- Does the agreement spell out who can be an owner/shareholder and who has the option or obligation to purchase shares?
- Does it state what will happen upon death, disability, etc.?
- Do you know what happens from a dollars and cents standpoint when that buy-sell is triggered?
- Does the agreement state the price that will be paid and the terms of how it will be paid?
- Is the price reflective of what you want to accomplish?
- Does your exit plan involve life insurance? Is the life insurance discussed in your buy-sell agreement?
By answering these questions, you can create clarity around your true intentions and the ultimate financial aspect of your buy-sell agreement.
If, after considering these questions, you determine that there may be a buy-sell agreement valuation issue; our team of experts is here to assist. If you would like to have the valuation issues in your buy-sell agreement reviewed, please contact Courtney Sparks White, J.D., LL.M., ASA, CVA at firstname.lastname@example.org or 614-545-9100 x11. Learn more about our business valuation services by visiting our website.