A comprehensive Buy-Sell Agreement should be part of any business formation involving multiple parties, including business or professional partnerships. Failure to provide for the purchase or sale of a business or partnership interest can leave a business vulnerable to costly ownership disputes that often threaten their survival.
The Los Angeles business law firm of Howard Law offers business formation planning, including the legal establishment of partnerships and corporations as well as Buy-Sell Agreements. A California Buy-Sell Agreement is a binding contract among business owners, which outline when and how an owner can sell an interest; who is eligible to purchase an interest in the business; and how the purchase price will be determined.
Businesses without a thorough Buy-Sell Agreement frequently do not survive a change in ownership that can come with the divorce, retirement, bankruptcy, disability or death of one of the owners.
- Divorce: The end of a marriage is frequently the cause of ownership disputes in co-owned businesses without a Buy-Sell Agreement -- particularly in community property states like California where property acquired during marriage is considered jointly owned. A good Buy-Sell agreement can require the former spouse to sell the interest back to the business.
- Bankruptcy: In the event of a bankruptcy by one of the owners, a business without a Buy-Sell agreement could face liquidation. An agreement can force an owner to sell his interest, with the proceeds going to a bankruptcy trustee. Having the Buy-Sell Agreement in place can literally save the life of a co-owned business.
- Business Valuation: A Buy-Sell Agreement can avoid disagreement about business valuation, which frequently surface between partners who cannot agree on the terms of a sale. In such cases, the agreement will govern how a valuation is determined, which can go a long way toward resolving what can otherwise be a costly legal fight over valuation at the time of a sale.
- Financing: The challenges co-owners can face in financing the share of a business interest can frequently endanger businesses without a Buy-Sell Agreement. A payment plan should be included as part of the agreement. Such plans typically require 25-50 percent down, with the remaining payments spread out over 3-5 years. Having such plans in place before the need for a buyout, can help ensure the continued survival of the business.
- Estate Planning: Buy-Sell Agreements can be useful in planning the transfer of a business to heirs, where a high valuation can cause unforeseen tax consequences. The terms of an agreement may legally set the value of a business interest much lower than the sale value might bring at the time of an estate settlement.
The Los Angeles business lawyers and estate planning attorneys at Howard Law offer comprehensive business and estate planning services throughout the Los Angeles area, including Anaheim, Riverside and Santa Ana. Call today for a free and confidential appointment to discuss your rights.
Los Angeles Buy-Sell Agreements - Call (800) 872-5925 - Howard Law