If you are a business owner in Wisconsin, then you should definitely be familiar with buy-sell agreements. Having this document will protect you and your business from unexpected triggering events while doing business with another person or entity. Here’s what you should know.
What is a buy-sell agreement?
A buy-sell agreement is a contract between business owners that outlines the terms of what will happen if one of them wants to sell their ownership stake in the company, dies or becomes disabled. This document is essential in avoiding risks that may come from you or another business owner. For example, if one of the owners gets divorced, their partner may have a claim to a share of the business. With a buy-sell agreement, you can dictate how you will handle this to avoid interfering with the affairs of the business.
Things to keep in mind when creating a buy-sell agreement
Outline your triggering events: What would make your buy-sell agreement spring into action? It could be retirement, death, divorce or disability.
Next, determine your valuation plan. When a triggering event occurs, how will the other partners determine the value of the shares you need to transfer? You could agree to hire an appraiser, or you can come up with a formula to use in valuation.
You should also determine a way to pay the departing business owner. Depending on your agreement, you can authorize to use the company’s cash reserve to buy out the departing owner or use insurance packages.
Breach of buy-sell agreements
According to business law, buy-sell agreements are binding; thus, any breach could lead to litigation. However, before you head to court, you can try other dispute resolution methods like mediation or arbitration. These alternative dispute resolution mechanisms take a much shorter time and can be more effective in resolving issues. In addition, remember to include a clause in your agreement that dictates how you will resolve issues that might arise.
A buy-sell agreement is the best way to protect a business you’ve worked hard and dedicated your life to build. Though it may not be mandatory for small business owners, this should be your first order of business whenever you plan on expanding or working with other people.