SALE TO PARTNERS – Business Destinations: The Most Overlooked Aspect of Business Planning

The Vaughn Law FirmUncategorized0 Comments

  • Sales to Partners

If you have business partners or are willing to purchase your interests, you can consider transition of ownership to the partners. If so, have a solid buy-sell agreement.

Two sample scenarios create a very stark contrast.  In one scenario, owners of a business have a buy-sell agreement that is entered by the partners at the very beginning of their business efforts.  The agreement might identify the price, or a formula to arrive at a price, or a process by which the price will be determined.  If a partner wants to leave, the agreement determines how everyone will proceed.  

In contrast, say that the business owners do not have such an agreement.  One owner wants to leave (retire, enter other ventures, etc.).  The owners have no buy-sell terms.  Typically, the remaining owners do not want to pay the figure that the departing partner wants to receive.  There is no resolution other than ongoing negotiations, or perhaps litigation.  Those issues must be addressed at a very challenging time, when the terms could have easily been done years before.”

Buy-sell terms are best addressed early.  This avoids selling at a time where tensions are at a maximum and the buyers want the lowest price and the seller wants the highest price.  If the partners chose not to buy, then you are open to sell your interest to the business itself through a redemption, or another person, depending on the language of your buy-sell agreement, bylaws or operating agreements. Buy-sell agreements can also address what will happen in the event of disability, death, divorce, or some other inability to proceed as an owner.  

 

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