Owning your own business and becoming an entrepreneur can be tricky especially when partners are involved; it can become even more complicated, especially if something were to happen to one of them.
A buy-sell agreement is an agreement between a business’ owners that details what is to occur if there are significant changes in the life of a business partner. Divorce, personal bankruptcy and death are only a few of the changes that can adversely impact a business partnership. On the other hand, with a properly constructed Buy-Sell agreement, the pain of dealing with these changes can be minimised and your business can continue to thrive.
Does your business need a buy-sell agreement? There are several reasons for entrepreneurs to enter into buy-sell agreements with their partners or co-stakeholders:
The first purpose of buy-sell agreement is to create a market for the owner’s business interest at certain triggering events such as death, disability or retirement.
The second reason is to facilitate a smooth transition of management and control for the surviving or remaining owners.
Third, buy-sell agreements are used to provide a mutually agreeable price and terms (so as to avoid litigation and friction).
The next reason is to provide the family of a deceased owner with liquidity rather than a non-marketable business interest.
And finally, business owners use this type of agreement in establishing the value of the business for estate tax purposes.
Learn more about buy-sell agreement right here: http://www.investopedia.com/terms/b/buy-and-sell-agreement.asp