Experienced Arizona Lawyers Negotiate and Draft Buy-Sell Agreements
Phoenix business attorneys protect owners’ interests
If you own a business, you can sell your interest at any time. But if you are involved with partners in a closely held business, the situation is a bit more complicated. You want a high degree of commitment from a potential partner, so you don’t want it to be too easy for a partner to cash out. If a partner does decide to sell, you want to make sure the buyer shares the vision and goals for the company. You also need to have mechanisms in place for valuing the exiting partner’s share of the business and allocating rights in the company’s intellectual property. You also have to anticipate the financial impact on the company when a partner withdraws. For these reasons and more, you should put in place a sound buy-sell agreement when you form your company. At the Law Offices of Donald W. Hudspeth P.C. in Phoenix, our business attorneys have the knowledge and experience to craft agreements that protect your rights and your company’s future.
Essential elements of an effective buy-sell agreement
A buy-sell agreement is an important part of any business partnership. Ideally, you would execute a buy-sell when you form your company, but many businesses hold off until they’ve had a modicum of success and are contemplating the next phase of operations. Others wait until a partner is being forced to withdraw due to ill health or retirement. But it’s important to note that until you have drafted a buy-sell agreement, your business is vulnerable to unforeseen events, such as the sudden death or incapacity of a partner.
Here are the essential elements of an effective agreement:
- Valuation — The partners must agree on the method of valuing the business at the time of sale. This valuation must consider assets, liabilities and revenue but must also estimate the worth of intangibles, such as the company trademark, trade secrets, patents and customer good will. The agreement must assign a percentage of ownership to each of the partners based on contributions to the company, with reliable benchmarks.
- Triggering events — Buy-sell agreements consider a range of events that could compel a partner to sell, such as bankruptcy, death, disability, divorce, retirement, the opportunity to buy a business or simply the desire to move on. The nature of the event and the amount of time spent with the company can influence the partner’s share of the business.
- Eligible buyers or successors — A potential buyer must be someone who wants to help guide the company to greater success. The partners should be able to veto a potential buyer who sees no future for the company and simply wants to sell off the assets.
- Financing — What happens when a partner wants out but can’t find an acceptable buyer? The burden would fall on the remaining partners. But, buying out a separating partner can be an expensive proposition. The agreement should include a plan for financing the buyout to avoid financial hardship that can hamper operations.
- Grounds for termination of the agreement — If the partner is departing because the business is being poorly run, his or her rights have been violated, or the other partners have changed the mission of the company, the exiting partner should not be held to the terms of the agreement.
- Spouse or heirs take interest — Sometimes succession planning contemplates the spouse or children will take the decedent’s interest in the company because they want to be involved in the company. However, in most cases neither the remaining company owners nor the heirs want to own the interest. They want or need to sell the corporate shares or membership interest to the company (redemption) or the other owners (cross-purchase) because the family’s estate is the business.
The above provisions can also be included in a comprehensive corporation shareholders agreement or LLC operating agreement. A Phoenix business lawyer at our firm can draft a sound buy-sell agreement to protect your business assets so you can continue operations while dealing with the separation of a partner. The agreement also helps you avoid disputes that lead to protracted, expensive litigation. This preserves the value of your company and the wealth you’ve worked hard to acquire for yourself and your family.
Contact an experienced Phoenix business lawyer to discuss your buy-sell agreement
If you want to protect your company from turmoil when a partner moves on, Law Offices of Donald W. Hudspeth P.C. can help. Our Phoenix business attorneys draft reliable buy-sell agreements for companies throughout Arizona. Call us at 866-696-2033 or contact us online today.