When you start a business, there are many different legal documents that you may consider creating in order to protect your interest in the company. The necessary documents will depend upon the type of corporate form you choose. For example, partners will need a partnership agreement and corporations will need Articles of Incorporation.
One document that virtually every business should have, no matter how the business is structured, is a buy-sell agreement. In fact, having a buy-sell agreement is so essential that a recent article on Forbes cautioned business owners that every company should have this type of agreement in place even if it is the only legal document that they have.
Sepahi Law Group, APC can help you to negotiate and draft a buy-sell agreement to protect your interests. The type of agreement that you need will vary depending upon the circumstances, with some agreements far more complex than others. Our San Diego, CA business law attorneys will make sure you have the right contract in place to ensure that you do not jeopardize your rights to your company in the future. Call today to learn more.
Why You Need a Buy-Sell Agreement
A buy-sell agreement is a contract between co-owners of a business that specifies what will happen if one of the owners dies or leaves the business for any reason. The agreement can protect business owners in the event of a death, divorce, or situation where one or more owners decides he or she no longer wishes to have an ownership stake in the company.
The terms of the buy-sell agreement can be dictated by the specific needs and desires of the business owners. However, it is very common for an agreement to give co-owners the right to buy out someone who wants or needs to leave the business. For example, if Joe and Sue all own a business together and they have a buy-sell agreement with a cross purchase clause, then Sue would need to give Joe the opportunity to buy the business if she left and vice versa. This way, Sue would not be able to just sell her ownership stake in the company to someone that Joe did not like.
A buy-sell agreement can do more than just give co-owners first right to purchase the business if one party leaves. The terms of the agreement can specify what happens to a business upon death, divorce or bankruptcy. It is common for life insurance policies to also be purchased in conjunction with the creation of a buy-sell agreement. For example, Sue may have a life insurance policy on Joe’s life and vice versa. This way, when Joe or Sue dies, the insurance policy will pay out to the surviving business owner and ensure there is enough money for the survivor to buy the deceased’s ownership stake in the company.
Sepahi Law Group, APC can help clients with the negotiation and drafting of a buy-sell agreement. Call our San Diego business law attorneys today or contact us online to schedule a free consultation and learn more about how we can help you protect your business interests.