If you began a business with other individuals and together you co-own your business venture, you know how important it is that you know and trust the other co-owners of your business. Your decision to go into business with that other person or people was likely based on a careful assessment of him, her, or them:
- Do you trust them? Have they been trustworthy in the past?
- Are they committed to the same business goals as you?
- Do you feel that you can work together with them to advance the business?
Imagine the turmoil that would result to your business if a co-owner and fellow shareholder suddenly died and his or her shares were distributed to his or her family members, none of whom you worked with previously? Or if a co-owner and fellow shareholder divorced his wife and had a significant amount of his or her shares divided between himself and his ex-wife during the divorce. How can a business owner protect the ownership of his or her business from an uncertain but potentially devastating future?
Buy-Sell Agreements Protect the Ownership Interest of Your Business
Many business owners have found buy-sell agreements to prove extremely valuable in protecting the continuity of their business operations when an owner dies, becomes disabled, or files for divorce. At its core, a buy-sell agreement is an enforceable contract between shareholders of a business and the business itself in which the parties agree that, upon the occurrence of a certain triggering event, that individual’s shares will be repurchased by the business at a set price.
The individual (or his or her estate) receives the value of the shares but loses the voting power and ownership interest of the shares. A “triggering event” for purposes of a buy-sell agreement can be any occurrence; however, typical triggering events include death, divorce, disability, and/or departure of a shareholder and/or co-owner from the business.
Buy-sell agreements do not need to be signed by every shareholder: in fact, some businesses merely have controlling shareholders and owners of the business enter into buy-sell agreements. And because buy-sell agreements are private contracts between the private business and individual, parties are free to craft nearly whatever terms they wish: what constitutes a “triggering event,” how the price of the affected individual’s shares will be determined, whether anyone else other than the business can offer to purchase the affected individual’s shares and, if so, under what circumstances, etc.
Why Drafting Your Own Buy-Sell Agreement is a Bad Idea
Although the concept of a buy-sell agreement may sound simple, it behooves most business owners to have an experienced and competent attorney draft and execute such an agreement. In many cases, the buy-sell agreement will need to be coordinated with other legal documents like the affected individual’s will and/or pre- or postmarital agreement, for example.
Not only this, but the buy-sell agreement must be written and presented to the individual and other business owners in such a way that each party clearly understands their rights under the agreement and that all parties are entering into the agreement freely and voluntarily.
Arizona business lawyer Patrick J. Monahan of the Monahan Law Firm, PLC has significant experience helping Arizona business owners protect what they have worked so hard to achieve through buy-sell agreements. He can evaluate your business’s situation and circumstances and inform you whether a buy-sell agreement makes sense in your case.
If so, he has experience drafting these agreements and walking you and your business through the steps necessary to execute the agreement. Contact Monahan Law Firm, PLC today by calling (623) 385-3190.