The Business Continuation or Buy-Sell Agreement

Every privately held business with more than one owner needs a business continuation or buy-sell agreement. A buy-sell agreement (“Agreement”) helps ensure the survival of the business and establishes its value upon the future occurrence of certain significant ownership-changing events. These include:

• Transfers of Ownership : The Agreement will restrict transfers to outsiders and grant an option to the business or the remaining owners to buy the ownership interest in the event of an attempted transfer.
  
• Death or Permanent Disability : The Agreement will provide for an optional or mandatory buy-out of the deceased or permanently disabled owner's interest and establish the price and terms of the buy-out. Insurance can be put in place to fund the purchase.
  
• Retirement or Other Termination of Employment : The Agreement will provide for an optional or mandatory buy-out of the retired or terminated owner's interest and set forth the purchase price and payment terms of the buy-out.
  
• Bankruptcy and Divorce : The Agreement will contain an option and purchase price for the business or other owners to buy an ownership interest being held by a Trustee in Bankruptcy or awarded by a Court to an owner's ex-spouse.
  
• Insoluble Business Disputes : In the event of a business stalemate which jeopardizes the future of the business, the Agreement will set forth various mechanisms to resolve the dispute and avoid a costly business dissolution.

A key component of the Agreement is the establishment of an accurate fair market value for the business. This can be done in variety of ways, including the application of a valuation formula, annual agreement among the owners and appraisal.

If your business doesn't have an up to date Buy-Sell Agreement in place, its long-term survival is at great risk.