A buy-sell agreement is a contract that formally allows a business owner to sell business interests. For many business owners, the eventual goal is to sell their business when they intend to retire if they will not be passing the business down to their children. However, there are several mistakes you can make that can jeopardize your buy-sell agreement.
1. Forgetting to Update the Buy-Sell Agreement
If you do not regularly update your buy-sell agreement, you may find that the agreement has become stale because you have not upgraded it to account for the current needs of your business. Therefore, you will want to update the method for determining the value of your business.
A buy-sell agreement is usually created around the first time that the business is formed. Normally, the agreement is filed away and is not viewed again until a buy-out has been triggered. However, if the business was successful, it is likely to be much more valuable.
2. Using a Buy-Sell Agreement Template
A buy-sell agreement that works for one business will not necessarily work for another. You'll want to work closely with business transaction law services to craft the perfect agreement for your business. For example, you will want to take into consideration any unequal ownership interests you have. An attorney will help you select a buy-sell agreement that would make sense for your business.
3. Choosing the Wrong Triggering Events
Oftentimes, you might not foresee all of the triggering events that you would want for a buy-sell agreement. For example, you may not think to include an event where the loss of a license leads to a buy-out. A business transaction law service can help you identify triggering events.
4. Failing to Directly Address the Sale
You might find yourself in a situation where the other owners do not want to sell the business but you would want it to be sold under specific circumstances. Unless your buy-sell agreement does not specifically address this, you may find yourself facing obstacles as you attempt to sell your business. You may discover that your partners are able to block the sale if a business transaction law service has not helped you prevent this.
5. Assuming That the Buy-Sell Agreement Is Fair
When one owner is wealthy and another owner is also an employee of the business, the employee may be unwilling to sell the business because he or she may not have a job. You will want to work with legal services to make sure that your buy-sell agreement is fair.
