Every day, you and your partners negotiate decisions to make your business more profitable. You must agree on supply chains, marketing, new products, and the employees you hire. However, many people neglect to consider what will happen to their partner’s share if they leave the business. This could occur because someone retires, becomes ill, dies, divorces, chooses to sell, or loses their share as an asset in bankruptcy.
Discussing plans for owners’ shares now can prevent future arguments and possible loss of control when the shares are up for grabs. For example, if a partner divorces, the judge may consider the business share a joint asset, and you could end up with a disgruntled spouse as an unintended partner. If you own a small business with partners, speak with a California buy/sell agreements lawyer at Sparks Law. Our skilled attorneys can draft an agreement to eliminate problems when an owner leaves.
There are many events that may necessitate a buy/sell agreement. Triggering events could include:
California business owners should meet with a knowledgeable buy/sell agreements attorney to discuss their plans for various triggering events.
Redemption buy/sell agreements are used when the business buys out the departing owner. A cross-purchase buy/sell agreement is used when other owners buy out the departing owner. In both cases, the owners must decide on a buyout price. An experienced local attorney could further explain these options for buy/sell agreements.
Owners who wish to adopt a buy/sell agreement early in the company’s life should realize that if the business is booming, its value will grow. Specifying a definitive buyout price too early would not be fair to an owner leaving after prosperous times. This is an easy fix for our California lawyers, who can insert a covenant calling for the business’s valuation to be adjusted regularly to reflect its true position prior to a buyout. There are also other ways to value a business before a buyout.
Professional business appraisers and forensic accountants commonly assess a company’s value in anticipation of a buyout. A neutral formula, factoring in book value with adjustments, or an earnings multiple are also common valuation methods. Owners can agree to submit private bids in an auction format, and the company can award a departing owner’s share to the highest bidder. An attorney experienced in handling California buy/sell agreements could help owners analyze their options for valuation.
Buy/sell agreements benefit all owners, including in family businesses, where these contracts can work to defray high estate taxes. A buy/sell plan helps minimize arguments when an owner departs, whether in a family business, small partnership, or limited liability company. Because there is consensus, all owners are treated the same after a triggering event.
If you own a small business with others, contact a California buy/sell agreements lawyer today. The legal team at Sparks Law is here to discuss how you can safeguard your company’s future with this important document.
