Wednesday, June 22, 2011
Do We Need a Buy/Sell Agreement?
When setting up an LLC or corporation with multiple owners, it is absolutely crucial for the owners to enter into a buy/sell agreement. In the case of an LLC, the buy/sell agreement is often incorporated into the LLC Operating Agreement. In the case of a corporation, the buy/sell agreement is occasionally contained in the Code of Regulations or By-laws, but generally is a separate document.
A well-drafted buy/sell agreement should contain all the agreed-upon rules governing transfer of ownership interests. Among other things, the agreement should set forth what restrictions apply to transfer of ownership interests, what trigger events require or permit an owner to transfer his or her ownership interests, which party or parties have the right to acquire the offered ownership interests, what price the acquiring party will pay for the offered ownership interests, what payment terms will apply, whether the purchase price in a death or disability situation will be funded by life insurance proceeds, and how disputes as to value or transferability of interests will be resolved.
Without a buy/sell agreement in place, ownership interests are freely transferable. This can lead to interesting, but not so amusing situations. For example, if your business partner dies, you could find yourself in business with your former business partner’s spouse. Things might work out. Or not. Why take the chance? If I can help you put together a Buy-Sell Agreement appropriate for your situation, please let me know. Jsenney@pselaw.com or
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