Is It a Good Idea To Have a Buy-Sell Agreement?

Author: MatadorAdmin Posted on: . Filed in: Business Law.

Business Lawyer

When you decide to become a partner in a business, you may do so with someone you know well. You may decide on a handshake and an oral agreement on how things like profits, buy-ins, and debts will get handled. You may believe that this is the easiest and best way to handle a partnership because the two of you have known each other for a long time. However, there are some things at the beginning of your partnership that you may not have planned. If something happens to your partner like they file for bankruptcy or die suddenly, what happens to their share of the business? Having a legally binding buy-sell agreement in place at the onset will help mitigate difficult decisions down the road.

Dealing With the Death of a Partner

The unexpected death of your partner may be devastating enough on a personal level, but without a buy-sell agreement, it may become equally bad for your business. If your partner was married, their share of the company would pass to their spouse. If the spouse is not as cooperative as your partner was, you may run into trouble, and your entire business may wind up getting liquidated or worse, you may have to come up with the capital to buy the spouse out. A buy-sell agreement will set out how things will get handled in the event of a death.

A Partner’s Financial Problems

If your partner goes through a tough financial downturn or loss, they may wind up in a massive amount of debt. With no way out, they may decide to declare bankruptcy. Depending on the type of bankruptcy claimed, all assets may be seized and sold to pay the debt. One of those assets would be your business. A buy-sell agreement will separate personal finances from the business, and put up a Chinese wall of sorts between creditors and the company finances.

A Personal Falling Out

A side effect of running a business may be that you and your partner don’t always see eye to eye. If you can’t agree on daily decisions, your business may start to falter, and you may both wind up making poor choices out of anger. A buy-sell agreement will not allow one of you to overextend the finances for the company without the other’s approval. Therefore, putting a contract in place as soon as possible can save you both from getting caught up in a bad situation later.

You may not believe you need a buy-sell agreement, and hopefully, you don’t. However, having one should bring peace of mind to both of you that you are protected in the worst of times. Get with a business lawyer in Melbourne, FL who can help you draft something that works best for your situation.

Thanks to the Law Offices of Arcadier, Biggie & Wood for their insight into business law and buy-sell agreements.