There are many actions you must take to make your small business successful. However, do not overlook the actions that will safeguard your business if a partner’s interest is at stake. In time, you or a partner may wish to sell or retire. Unforeseen circumstances, such as death and divorce, can also affect what becomes of your business.
In a closely held business, you and your partners must consider who can buy out a departing owner when the time comes. Consider all possibilities by speaking with an experienced attorney at Sparks Law. What will you do if an owner loses a portion of the business in a divorce settlement? To further discuss your business questions, contact a Connecticut buy/sell agreements lawyer who can help draft this essential document.
Owners may not need a buy-sell agreement for years, but it is a good idea to have one in place. The events that trigger the agreement are often sudden and could result in catastrophe for an unprepared business.
Buy-sell agreements help owners avoid misunderstandings and arguments under the stress of a triggering event. Additionally, family members in business together can use them to lessen the burden of estate taxes.
The agreement establishes what happens when an ownership share is at stake, whether it be stock, a share in a limited liability company, or a partner’s share. The other owners will decide whether the company or the owners buy back the interest. A price or valuation method will be laid out.
Triggering events that necessitate the document’s use, such as the death of an owner, are also included. Other triggering events can include:
A local attorney could suggest appropriate triggering events to include in a buy/sell agreement, depending on a Connecticut business owner’s situation.
A redemption buyout occurs when the company buys an owner out. A cross-purchase agreement is used when other owners buy a departing owner out. If a departing owner identifies an interested buyer who is not currently an owner, the current owners usually have the right of first refusal and, if they choose not to buy the interest, should at least have a say in approving an outside owner. A skilled attorney at our firm can help include pertinent points in buy/sell agreements.
It is counterintuitive to set a buyout price when the business is a startup because it will be worth more as its success grows. The agreement could provide for owners to adjust the valuation at regular intervals.
Another way of pricing a share in a buyout is for owners to hire a business appraiser or forensic accountant. Owners could also plug the company’s financials into a neutral accounting formula considering adjustments or an earnings multiple. An auction among owners is also acceptable, with the highest bidder taking the departing owner’s share.
As there are many considerations, it is crucial to discuss valuation for a sale price with a Connecticut buy/sell agreements lawyer.
Your focus is on building a successful company with your partners. We can help you accomplish this goal by providing you and your partners with essential documents and contracts.
Do not leave the fate of your company to chance. Contact a Connecticut buy/sell agreements lawyer who can put critical provisions in place. Reach out to Sparks Law today to set up a consultation.
