Search Site
Ask about offsite General Counsel services Appointments 365 – 7 days a week 866-696-2033

Why Every Closely Held Company Needs a Buy-Sell Agreement

You and your partners have poured years of blood, sweat, and tears into building your closely held business. It’s thriving, and the future looks bright. But what happens if one of you decides to leave, becomes disabled, or passes away unexpectedly? Without a plan in place, this unforeseen event could throw your business into disarray.

This is where a buy-sell agreement comes in. It is a legally binding document that outlines the process for transferring ownership or shares within your company when a co-owner is no longer able or willing to participate. Think of it as a roadmap for avoiding a potentially disruptive situation, ensuring a smooth transition and protecting your business’s longevity.

The following are advantages that make a buy-sell agreement essential for any closely held business:

  • Exit strategy — Life throws curveballs. A partner might move away, want to pursue other ventures, or simply retire. A buy-sell agreement removes the uncertainty surrounding their share. It clearly defines who has the right to buy the departing owner’s interest, preventing confusion and potential legal battles.
  • Fair valuation — Determining the value of a closely held business can be contentious. A buy-sell agreement eliminates this hassle by establishing a pre-determined valuation method for ownership stakes. This could be a fixed price, a formula based on company performance or an appraisal process, all agreed upon by the partners beforehand.
  • Controlling ownership — Without a buy-sell agreement, a departing owner can potentially sell their share to anyone. This might introduce an outsider whose values or goals don’t align with the existing partners. A buy-sell agreement can give the remaining owners a “right of first refusal,” allowing them to purchase the departing owner’s share before it goes to someone else.
  • Business continuity — Losing a partner can disrupt operations. A buy-sell agreement ensures a smooth transition by outlining the steps for buying out the departing owner’s interest. This minimizes disruption and allows the remaining partners to maintain business continuity with minimal hiccups.
  • Avoiding legal nightmares — Disagreements over ownership can lead to costly and time-consuming legal battles. A buy-sell agreement acts as a pre-emptive measure, outlining a clear process for resolving ownership issues. This can save your business from the financial and emotional strain of litigation.
  • Funding the buyout — The financial burden of buying out a departing partner can be significant. A buy-sell agreement can incorporate life insurance policies on each owner. In the event of a death, the life insurance proceeds would provide the necessary funds for the remaining partners to purchase the deceased owner’s share.

By proactively establishing a buy-sell agreement, you safeguard your business from unforeseen circumstances. This highlights the importance of seeking professional guidance. An experienced Phoenix business lawyer can draft a comprehensive buy-sell agreement tailored to your unique needs. This helps ensure your business assets are protected while you cope with the transition of a partner’s departure. 

At Law Offices of Donald W. Hudspeth P.C., our Phoenix business attorneys draft reliable buy-sell agreements for companies throughout Arizona. Call us at 866-696-2033 or contact us online to set up a consultation.

Leave a Reply

Your email address will not be published. Required fields are marked *

Donald W. Hudspeth Attorney Photo
Donald W. Hudspeth
Principal Attorney

Attorney Donald W. Hudspeth has more than twenty years’ experience practicing corporate and business law. Before attending law school, Mr. Hudspeth held a stock brokers license at the age of 21 and owned his own business at the age of 23. He was a business law professor at Arizona State University, West Campus, and has conducted classes and seminars for a number of higher institutions and organizations. Mr. Hudspeth has published two books on law and is the founder of the radio programs Law on the Edge and Law Talk.

Mark S. Hamilton Attorney Photo
Mark S. Hamilton

About Attorney Mark S. Hamilton has experience handling all aspects of civil and commercial litigation in federal, state, and tribal courts at the trial and appellate levels. Practice Areas Business litigation Commercial litigation Education University Of Hawaii Wm. S. Richardson School Of Law, Juris Doctor - 2002 University Of Hawaii, Master Of Arts in Asian…

  • Preeminent AV Rated
    Client Distinction Award
    Bar Register
  • AV Rating
    The Arizona Republic
  • Arizona Sate University
    Top Rated Lawyers
    Client Champion
  • McAfee Secure
    Lawyers Of Distinction
    2020 issue of AZ Business Leaders

Our firm now offers a scholarship program for ASU first and second year law students.

The scholarship is awarded to students for academic merit with an interest in business and business law. Candidates may have majored in fields other than business, have taken a break between college and law school, or have had exceptional life experiences.

Read More

Pay your bills online

Use our easy-to-use and secure online payment feature to pay your bill. We accept all major credit cards.

  • "I would recommend Mr. Hudspeth unequivocally. Not only is he an outstanding business attorney, he also provided me with access to a divorce attorney. Thanks to his skill, and resources available outside the Phoenix law family, I was successful in challenging a “family law” mediation that was particularly and grossly unfair." - Chandler, Arizona Private Individual

  • "Thank you for the work you have done in creating these documents. It is always a pleasure dealing with this firm!" - J. P.

  • "An excellent response. Masterfully prepared. Thank you." - El Paso, Texas Real Estate Investor

  • "Glad about meeting with Don. Felt so much better, better than in 15 years. Really appreciated the conversation." - RH, Phoenix Manufacturing Company

Contact us

Quick Contact Form