Business breakups

Addressing what to do if you or your partner want out, die, become disabled or stop being friends is a super important part of the governing documents for your business.

A buy sell agreement is meant to provide a roadmap for the company and owners to deal with changes in ownership with minimal impact on the business. These can be stand-alone agreements, or part of the operating agreement of a company.

Here are some general rules for buy-sell provisions.

1. Shouldn’t be cookie-cutter.

Buy sell provisions should be prepared to reflect the unique characteristics of your particular business! The document should be updated and reviewed periodically to make sure it is still in line with your desires.

2. Determine how the business will be valued.

For instance, there are certain “discounts” that can apply in a business valuation, and those discounts can substantially affect (lower) the buyout price. You can decide ahead of time whether you want your valuation to consider certain discounts, such as lack of control or lack of marketability. Additionally, you can, and should, decide how you will pick the appraiser, and what qualifications must the appraiser have? Put this is writing ahead of time!

3. Discuss how the buy-out price will be paid. The timing, the source of funds, whether life insurance or disability insurance policies will come into play. Again, you don’t want to be dealing with these details in the heat of the moment!

Here are some common elements of a good buy-sell agreement.

1. Sets rules for transfer of ownership interests in the following scenarios:
• Voluntary transfer by an owner
• Involuntary transfer by an owner (caused by a bankruptcy or creditor action)
• Death of an owner
• Disability of an owner
• Irreconcilable deadlock among owners.
2. Spells out the procedure for each scenario… Each situation will call for different actions and responses form the remaining members.
3. Describes how members will determine a buy-out price
4. Describes payment terms (how much time does the company have to pay the full price)
5. Last, but not least…please have everyone sign it! None of this works if the document is unsigned!

As always, it is best to consult with a lawyer about the finer points and best practices when dealing with the governance of your business. If you want to know more, Call me! 614-572-6366. Email me! mwick@mwicklaw.com.

Wick Law, LLC is a small business legal practice, representing owners, investors, and entrepreneurs in all aspects of commercial, corporate, and business law, estate planning, contracts and negotiations, business litigation, and real estate. For more information: Contact 614-572-6366, visit www.mwicklaw.com, or email us at mwick@mwicklaw.com. Wick Law, LLC is located in Columbus, Ohio.

(Materials in this article have been prepared by Wick Law, LLC for general informational purposes only. This list is for educational purposes and is not to be considered exhaustive. More items could be added to this checklist based upon the type of transaction or industry standards. These materials do not, and are not intended to, constitute legal advice. The information provided is not privileged and does not create an attorney-client relationship with Wick Law, LLC or any of the firm’s lawyers. This checklist is not an offer to represent you. You should not act, or refrain from acting, based upon any information in this checklist. Wick Law, LLC maintains offices in Columbus, Ohio, and has lawyers licensed to practice in Ohio and in the United States District Court, Southern District of Ohio. The firm does not intend to practice law in any jurisdiction where the firm is not licensed.)