You and your new business partner have a great relationship — and you hope that nothing ever happens to it. But what if it does? All kinds of things in your partner’s personal life have the potential to bleed into your business relationship, including things like divorce, illness, personal bankruptcy and retirement.
A buy-sell agreement can help protect what you’re building today from trouble tomorrow. Here’s what you should keep in mind:
What’s a buy-sell agreement?
Basically, it’s a formal contract that defines how one party’s share of a business can be reassigned if that party leaves the business for any reason.
What should buy-sell agreements include?
They should stipulate exactly what situations trigger the agreement to spring into action. They also need to clearly define how certain important parts of the transaction have to be handled. For example, a good buy-sell agreement should include things like:
- Who can (and cannot) be a buyer for a departing partner’s share
- How any sale is to be funded, whether that’s cash or something else
- Any specific tax-minimization process that should be followed
- How the business is to be valued before the sale amount is established
Discussing these things with your partner now — when everything is going well — can keep you out of heated emotional conflicts later on down the line.
If you haven’t yet considered a buy-sell agreement or other tools that can protect your investment down the road, it’s probably time to make an appointment with an experienced attorney. They can help you assess the legal needs of your business moving forward.