From Legacy Moment eNewsletter (February 19, 2010)
Please join us for future issues, delivered via email each Friday.

The buy/sell agreement is one of the most important tools for maintaining the integrity of a business entity. A properly written and executed buy/sell agreement will: 
 

• Prevent inactive owners from gaining an ownership interest
• Ensure ownership continuity in case of death, disabilty, dissolution and divorce
• Provide a ready market for business interests
• Possibly establish a business value for estate settlement purposes
  

A buy/sell agreement should be in place for every business entity held by multiple-owners. At the most basic level, it provides a ready market for selling an ownership interest, establishes a valuation method and spells out the terms and conditions of purchase without placing a fractional owner in an unfair bargaining position.

A buy/sell agreement also restricts an owner’s ability to transfer a business interest. The typical agreement spells out the terms, conditions, triggering events and valuation methods under which owner’s interests may be sold.

All owners of a business agree to the triggering events and provisions that a buy/sell agreement will cover---including death, disability, retirement, dissolution, withdrawal prior to retirement, and other circumstances (divorce, bankruptcy, legal judgment, etc.).

Owners must be mindful that the provisions of a buy/sell agreement can be written as an option or as an obligation. In other words, each triggering event will either create an option to purchase or an obligation to purchase.

 More on Buy-Sell Agreements:

• Buy/Sell Review
• Ready for Succession?
• Is That a Good Idea?