1. It is the plan to follow for the sale of the business. A business Buy-Sell agreement is the legal succession plan for selling a business. Buy-sell agreements can provide a reliable exit plan for business partners when they no longer want to have a stake in the company.
2. A Buy-Sell Agreement allows for tax and emergency planning.
A Buy-Sell agreement should involve a tax strategy to help minimize tax and other financial burdens during a sale of the business or interest. A CPA or attorney experienced in advising business owners can help draft a Buy-Sell agreement that involves tax and other financial planning, such as purchase price and the terms and conditions of the purchase. A Buy-Sell agreement can provide legal certainty for the families or estates of those with interest in the business in the event of the unexpected, such as incapacity or passing of an owner or other key persons.
3. A Reliable Buy-Sell Agreement Helps Avoid Disputes.
A Buy-Sell agreement can help avoid disagreement among those with ownership interests. For example, members of an LLC can decide which valuation assumptions to use and ensure the appropriate language is in the Buy-Sell Agreement. If owners do not have a Buy-Sell agreement and cannot agree, one owner may file a lawsuit and ask a court to terminate the business. This will likely be an expensive process for all parties. Termination can be a disaster for a prosperous business and a huge loss for all owners. A Buy-Sell agreement can prevent such harm.
As with most things in our lives, it’s better to plan for the unexpected than to put off tough decisions. Decisions made during times of emergency allow for limited choices. A Buy-Sell agreement should provide peace of mind that your business has a reliable plan. Suppose you are unsure your Buy-Sell agreement will function or want some clarity on how it will operate in the event of a sale of interest or the business. In that case, you should have an experienced professional review it to ensure it is comprehensive and will function as expected.
