Business Continuation
Buy-Sell Agreement
A buy/sell agreement arranges for the disposition of a business interest in the event of the owner’s death, disability, retirement, or voluntary withdrawal from the business. The agreement typically specifies the circumstances under which business interests can or must be sold, the sale price, the terms of purchase, and the source of funding. The arrangement can take a number of different forms: Entity Purchase, Cross-Purchase, Wait and See Buy/Sell and One-Way Buy/Sell.
Possible Client Objectives:
- Provide a buyer for a business.
- Establish the ground rules for the transaction and the source of the funding.
- Establish the trigger for the transfer (death, disability, retirement, or termination).
- Provide an income stream for the seller.
- Provide liquidity for the seller’s estate.
- Create continued employment incentives for employees intended as successors.
Entity Types:
All closely held business forms. Can be solely owned, family owned, or owned by unrelated parties. Includes professional corporations, partnerships, and LLCs.
Business Value:
In excess of $500,000. A buy/sell agreement or alternative arrangement should also be used in connection with low value professional practice interest.
Age Demographics:
All business owners should have a buy/sell. Younger owners should include a provision for disability. For older owners, a buy/sell becomes critical if retirement is planned within the next five to ten years.
Relevant Factors:
Owners’ ages in relation to retirement, health status, vision for continuity of business, and cash flow available for funding agreement.