One of the most popular ways to go into business with another person is to enter a partnership. However, situations may arise where one member of a partnership no longer wants to remain in the arrangement. This may be by voluntary choice or circumstances outside their control, such as death or disability. In either event, having a binding buy and sell agreement is crucial.
A Virginia buy/sell agreements lawyer could take the lead in drafting these necessary documents. This includes identifying what you want to occur should the business arrangement come to an end and including specific terms that determine what parties have the right to purchase the vacant shares. Speak with an experienced attorney at Sparks Law today to learn more.
In a common partnership, the members agree to share the profits of the company and strictly define the obligations of each party. As long as a company stays in business, the rights of the members remain intact. Many small businesses are the product of a small number of people working together. These parties may form a business entity in the form of a closed corporation where the shares of the company go to only those owners. They may also choose to form a partnership where the members are the sole owners of the company and share equally in all profits.
A buy/sell agreement is necessary to ensure that ownership rights to a company remain within this small circle of parties. For example, if a member of a partnership dies or retires, it is vital to have an agreement in place that determines what is to happen to that party’s business holdings. These agreements contain provisions that order the sale of the leaving partner’s portion of the company to the surviving member. The funds from this sale go to the leaving member or their estate if this party is deceased.
Events that may lead to the dissolution of a partnership, according to the Code of Virginia § 50-73.109, may include:
In any of these examples, a buy/sell agreement will automatically trigger. A Virginia buy/sell agreement attorney could help parties to better understand why these contracts are so vital to small business dealings.
As vital as buy/sell agreements are to the future of a small company, the exact terms that may go into these agreements are always open for negotiation.
Perhaps the simplest option is to implement a cross-purchase agreement. Here, the remaining owners agree to buy out the leaving partner’s share in the company. Usually, these shares will split evenly among the remaining parties.
The other option is to form a redemption agreement. In these cases, the company itself will buy the share of the business left behind when a partner leaves. This can increase the overall value of the business while not placing a financial burden on individual people.
Finally, it is possible to create hybrid plans that offer greater flexibility. A buy/sell agreements lawyer could help parties to choose the options that are best for them and their Virginia companies.
Forming a new company, whether it be a sole proprietorship, a partnership, or a closed corporation, requires members to take a look into the distant future. Various events could force a member of the company to withdraw from their position of ownership. This may be a retirement, a bankruptcy, or even a death.
Only by having a valid buy/sell agreement in place can the other members of the company retain control. These contracts will require the purchase of the leaving member’s ownership shares by the other members, the company itself, or a combination of the two. A Virginia buy/sell agreements lawyer could help companies to negotiate and form these essential contracts. Reach out to Sparks Law today to learn more.