Protection for Each Owner of a Business

If you are thinking of going into business with someone else, be sure to do it with a plan for what will happen to the interest of a business partner who leaves for whatever reason. For a corporation, this agreement takes the form of a stockholders agreement, and for other entities, an operating or partnership agreement. Without the so-called “buy-sell” provisions of such an agreement in place, the remaining owners may find themselves unexpectedly in business with someone who bought the interest from the departing owner, creditors who took over the interest in the personal bankruptcy of the departing owner, the personal representative or heirs of that person’s estate or some other successor to the interest whom they did not intend to have as a business partner.

Typically, buy-sell agreements provide for the company or the remaining owners to purchase an interest upon an owner’s death, disability, personal bankruptcy or termination of employment with the business. These provisions can also set forth the means of establishing the purchase price for a departing owner’s interest and the terms of payment, usually over time to avoid overburdening the company cash flow.

Buy-sell provisions are essential for reducing the chances of costly, time-consuming disputes and providing for orderly disposition of a departing owner’s interest.

If you have any questions about this topic, please contact Jay Merwin at merwin@bowie-jensen.com.