If you are in business with partners, you must think ahead. Even if your business is prosperous, the time will come when someone wants to sell their interest and/or retire. Business owners need exit strategies.
Talking about how the company will handle an owner’s exit is not enough. The best time to plan for a future without one or more owners is now. Consult a Johns Creek buy-sell agreements lawyer to set in place how you and your partners will transfer your business interests when the time comes to leave. An experienced attorney at Sparks Law can help secure your plans for a successful future.
Owners may leave businesses when they retire, or when shareholders or partners force them out. Sometimes the exit is not planned, such as an owner who becomes incapacitated, dies, or divorces. A buy-sell agreement should speak to what should happen when these different exit scenarios arise, including the following circumstances:
Each business is unique, and other situations may apply. That is why it is essential to contact a Johns Creek attorney to explore how a client’s company should handle buying out another owner.
One of the primary considerations when buying out an owner is what the owner’s share is worth after valuing the company. If the company has grown substantially, it probably should not be valued at the startup price each owner invested. Many businesses use an earnings multiplier in these situations, but an owner who is selling may want an agreement to account for anticipated revenues and goodwill. A skilled buy-sell agreements attorney in the area could enlist a business valuation expert to put a price on the business.
Buy-sell agreements are meant to address how an owner’s share should be distributed if an exit occurs. For example, it could be disruptive if the heirs of a deceased owner try to manage a business they know nothing about without a buy-sell agreement to govern the situation. If the heirs do want to sell the interest, the buy-sell agreement can dictate if they must first offer the shares to the company, called a right of first refusal.
The right of first refusal is also appropriate if an owner wishes to retire or leave because management differences cannot be resolved. A Johns Creek lawyer at Sparks Law could include provisions in a buy-sell agreement pertinent to a client’s needs.
A buy-sell agreement often allows business owners to purchase insurance on each other so that the owners would be policy owners and beneficiaries. This cross-purchase clause permits owners to collect insurance money to buy shares from a deceased owner’s estate or from an owner who becomes incapacitated and cannot perform duties.
The company can also purchase insurance on owner-managers if a stock redemption clause is included in a buy-sell agreement. This insurance allows the company to redeem the business interest of an owner who dies or becomes disabled. An attorney at our Johns Creek office could advise about which options best protect a business and its owners and should be included in buy-sell agreement.
The longer you are in business, the more likely you will have to deal with other owners who wish to retire or sell their business interests. You should anticipate that day is coming and call us before it arrives.
At Sparks Law, a Johns Creek buy-sell agreement lawyer can anticipate the changes that businesses inevitably face. Owners die, retire, become disabled, and divorce. Your business should be ready to handle these situations. Call today for your initial consultation.