A buy/sell agreement protects businesses with many owners from disputes over succession. If an owner retires or leaves the company, the agreement provides a template for transferring value to the remaining owners. Continue reading to learn some basic mistakes to avoid before agreeing to any arrangements for your business.
Every small or medium-sized business enterprise (SME) should establish a buy/sell agreement during the company’s founding. Waiting for a transition of ownership to occur will most likely result in conflict between the interested parties.
Use clear language
Buy/sell agreements need to use clear and precise language. You might think drafting your terms will save you money. However, without legal training, your contract can contain certain ambiguities that will lead to disputes at the time of transference. You might not be aware of many pitfalls and contingencies, so be very cautious before you decide to draft a buy/sell agreement on your own.
Understand the definition of value
Clear language needs to apply to the valuation of the company as well. The terms “fair value” and “fair market value” are not interchangeable. According to the CPA Journal, “fair market value” is a price that a buyer and seller willingly accept for a property. No compulsion can apply when it comes to fair market value. “Fair value” is a term that varies according to the people evaluating a property.
Drafting a buy/sell contract is a process that requires minute attention to detail. Make sure that every party agrees with the arrangement before you commit to a legal decision for your company. It will save you from ownership disputes in the future.