Like a prenuptial agreement in a marriage, a buy-sell agreement is a crucial tool for preventing a messy and potentially disastrous business divorce. This goes beyond disputes over division of money and property. A solid agreement can safeguard the continued existence and success of the business you’ve worked hard to build. By stipulating how owners’ shares may be valued and reassigned if any owner leaves the business, the agreement fosters clarity, control and financial security, allowing you to avert unpleasant and interruptive litigation.

A buy-sell agreement offers these benefits in the case of a business divorce:

• Orderly succession — A buy-sell agreement defines the process for transition, whether the breakup is due to a planned retirement, a sudden disability or unforeseen circumstances like death or bankruptcy. This pre-determined path promotes a smooth transition, minimizing disruption and maintaining business stability.
• Avoiding costly battles for control — A buy-sell agreement establishes clear procedures for purchasing the departing owner's interest in the case of a buyout, retirement or death. This saves everyone time, money and stress, allowing the business to focus on productivity.
• Setting a price for ownership interests — Closely-held businesses are not valued based on market indicators, so ownership shares are difficult to measure in dollar amounts. A buy-sell agreement can set a fixed price or establish a valuation method, providing both the departing owner and the remaining partners with financial predictability. The agreement can also specify a third-party to serve as the valuation expert.
• Keeping out intruders — Outsiders with incompatible values or interests may wish to take an ownership stake. A buy-sell agreement gives current owners the power to keep them out. It allows co-owners or the business itself the right or obligation to purchase a departing owner's stake, effectively acting as a gatekeeper against undesirable takeovers.
• Job stability — A well-crafted buy-sell agreement can provide job security for remaining owners and key non-owner employees. Knowing the business's future is secure can boost morale and foster a sense of stability within the organization. It can also help in recruiting new talent.
• Funding the transition — In an ownership dispute, one of the chief issues is how any buyout offer will be financed. The agreement can provide for insurance policies and other financing to be obtained to make sure purchasing owners or the company itself have the funds to pay for the departed owners’ shares.

No business founders want to think of the possibility of a breakup in the foreseeable future. Nevertheless, engaging in some effective planning at the onset can avert a painful and costly ordeal later on. An experienced business divorce attorney can help you put a well-structured buy-sell agreement in place, one that you can safely rely upon for years to come.

The experienced attorneys at Hemmer Wessels McMurtry PLLC help companies manage a multitude of issues surrounding business divorce. To schedule a consultation, call us at 859-344-1188 or contact us online.