If you own a business with a partner, you may find yourself wondering what happens if they leave the business — or, though you hope it will never occur, you may be wondering what happens if they pass away. You need some sort of plan for the future. You need the security and stability it provides.
One way to do this is with a buy/sell agreement. You can set this up when you start the company or at a later date if you already have the business and you want to expand your paperwork.
How this kind of agreement works
These agreements go by a few different names, including:
- A buyout agreement
- A buy and sell agreement
- A business prenup
- A business will
No matter what you call it, the agreement essentially just regulates how the other person’s share of the company should be handled upon their leaving the business. It may say that they cannot sell to a third party, for instance, but have to sell to you as the remaining partner.
This can be helpful for both sides. You know that you’re not going to get a random new business partner, depending on who wanted to buy. You’re going to retain control of the company. Your partner, on the other hand, knows how much money they or their estate will get. The agreement can contain a valuation of the business or a stipulation that a valuation will be done at the time, along with information about how large of a percentage both sides own.
Getting started on your goals
This is just one way to protect your company from the unknown. If you’ve like to get started, it’s wise to look into the specific legal steps you’ll need to take.