Starting a business with a group of individuals is an exciting time. Yet, complications can arise in any relationship, including a business partnership. A plan should be in place in case a partner dies or no longer wants to be with the company. Here’s why the buy-sell agreement is a crucial first step in your business.
Having an agreement in place eases conflict
You and your partners may be the best of friends who have never had a fight, but what happens if a partner dies? Do you want to work with that partner’s spouse? Or what happens if you or a partner wants to retire?
A buy-sell agreement is like a prenuptial agreement for wealthy people. Not only does it prevent future lawsuits but it also avoids conflicts. Miscommunication leads to strife. With a buy-sell agreement in place, everyone knows what to expect.
Having an agreement in place spells out the guidelines
Describe in detail how someone else or the business itself will buy out a partner’s interest. Address how you will value your company. In your agreement, you should answer these and other important questions:
- What is the company’s reputation in the community?
- How much revenue does the company bring in each year?
- What are the company’s assets?
Watch out for such problems as improper valuation and make sure the terms are clear.
By having a buy-sell agreement in place, you and your partners know what to expect. Your company can achieve every aspiration and remain conflict-free now and in the future.