When you start a new business, one of the documents you need to create with your partner is a buy-sell agreement. A buy-sell agreement outlines what would happen to each business owner’s interest in the operation if someone decided to leave the operation unexpectedly.
According to the U.S. Small Business Administration, there are 31.7 million small businesses in the U.S., and many of these companies have buy-sell agreements. To prevent disruptions to your operations or a dispute with your business partner, ensure your buy-sell agreement includes the following information.
Buyout conditions
Your buy-sell agreement should include a list of possible scenarios and conditions that could put this agreement into effect. For example, if one of your partners went bankrupt or got divorced, this could provide him or her with the opportunity to leave the business without repercussion.
A company valuation
Your buy-sell agreement should include a recent valuation of what your business is worth. This can provide a helpful basis for dividing assets and interests if you or your business partner ever decide to invoke this agreement.
Buying/selling structure
Your buy-sell agreement should include a basic structure for what buying or selling interest in your business will look like. Detail what this process should look like from start to finish can help ensure a smooth transition if you or your partner buys or sells interest in the business.
You should put a buy-sell agreement into place as soon as you get your business operations up and running. This can prevent issues and headaches later on and help you manage expectations with your business partner.