Is your business new or a mature company? Planning for the future of the business with a Buy Sell Agreement is crucial.
Consider whether the business owner has children or grandchildren capable of and who want to operate the business when the owners retire. Does the owner want to transition ownership interests in the business to a trusted employee or employees over time? Is a sale of the business a good option when the owners are ready to exit from the company?
One strategy is to have a Buy Sell Agreement between the business owners that includes terms about how owners can sell their ownership interest in the business.
A key factor for planning is how to value ownership interests in the business. A valuation formula is a useful tool. I often see Buy Sell Agreements where the parties said that they would value the business every two years. Then, a business owner wants to sell their interest and there is no formula or fair market value for the business in place. Valuing a business can be very costly when an owner wants out of company.
Another key issue that can be dealt with in a Buy Sell Agreement is what happens when an owner wants to sell their interest and other owners do not want to the interest to be sold to a third party. In this situation, the selling owner can be required to offer their interest in the business to the other owners prior to selling to an outside party.
It is critical for the business to identify its goals and concerns related to the sale of ownership interests in the business. High quality attorney assistance will assist owners to meet the needs of the business owners and avoid expensive and lengthy lawsuits down the road.
Lisa Wills, Law Offices of Lisa Wills designs exit strategies for business owners. Call us at (925) 463-9000 or send an email today to protect the future of your business and avoid a costly lawsuit.