When two or more people own a business, the parties much negotiate critical decisions until they come to an agreement. One important decision to discuss early on is the buyout agreement. As an owner, you are focused on growing your business. However, you should also have a clear idea of what happens to owners’ shares if they retire, die, or wish to sell and pursue other interests. An experienced attorney at Sparks Law can help you consider these important issues and protect your company’s future.
If operations are small, such as in partnerships or some limited liability companies, it may be vital for other owners to buy out a departing owner’s shares to continue the business and its mission. For instance, if one owner in a two-person partnership dies, and someone with radically different views inherits the deceased’s share, the business may succumb to disagreements and stalemates. If you own a business with others, a Florida buy-sell agreements lawyer can add this essential document to your business contracts.
A buy-sell agreement is dormant until some event triggers its use. Business owners must be clear on those events to avoid misunderstandings about who can buy out whom and for what price. These triggering events are memorialized in the final document and can include:
Triggering events are tailored to the owners’ wishes and are not identical in every buyout agreement. For instance, some owners may pledge a business share as collateral for a personal loan as a triggering event. Other owners may not. A knowledgeable attorney can further discuss triggering events in buy-sell agreements for Florida business owners.
When an owner departs, the company can buy the owner out using a redemption buy-sell agreement. Conversely, fellow owners can purchase the share using a cross-purchase agreement. One of the key factors in both contracts is determining a price in exchange for the interest.
Prosperous businesses are always worth more as they grow. Agreeing to a buyout price early in the game may not be fair if the business grows considerably. A savvy buy-sell agreements attorney would insert a clause calling for owners to adjust the valuation on a regular basis.
If the company is diverse and the accounting is complicated, owners can hire a professional appraiser or forensic accountant to value the business for a buyout. Owners can also use a neutral formula based on the company’s book value with adjustments or an earnings multiple. They can also conduct an auction among owners in which they bid on the interest.
Because valuation must be precise and fair, business owners should discuss the process with a Florida attorney well-versed in buy-sell agreements.
Giving the company and owners the right of first refusal to buy out a departing owner ensures that a random person will not suddenly become an owner. If the company and owners pass on the right to purchase, company protocol could give remaining owners the right to vet prospective new owners.
Buy-sell agreements prevent arguments among owners, including in family businesses that put them in place to circumvent estate taxes. Because all owners must agree to the terms in a buyout agreement, everyone is treated the same.
You and your business partners are focused on building a successful company, but part of that endeavor is making sure your company remains successful in the future. You do not need infighting down the road when one owner leaves and needs to be bought out.
Plan your company’s future now by contacting a Florida buy-sell agreements lawyer at Sparks Law. Our legal team can draft the contract you need for a smooth transition when an owner departs. Give us a call today to get started.