Let’s say that you and your two friends decide to open up an IT service company and happily run it for seven years. Then one day you have a disagreement with the other two about the direction the company should be going. What do you do? Well, without a Buy-Sell agreement your options are not very desirable. You will probably end up wrangling with each other until there are hard feelings and someone is forced out. With a Buy-Sell agreement in place, there would be no surprises and everyone would (probably) get to stay friends.
Our Peachtree City business attorney can help you with Buy-Sell Agreements
What is a Buy-Sell agreement?
A Buy-Sell Agreement is a document that spells out what will happened when a major event takes place like the disability or death of a major shareholder. One of the things most commonly covered in the agreement is a “cross purchase” plan. In an S Corp or some other two person partnership, each of the owners takes out an insurance policy that covers half of the company. Then if one of them dies the other owner can use the proceeds to give the surviving spouse a much needed influx of cash while consolidating ownership of the company at the same time. This can work in larger partnerships as well as long as the payout is adjusted to the percentage of ownership each participant has.
Another common item in a Buy-Sell Agreement is “Key Person” insurance. Partners are usually the movers and shakers in any business and when one dies, the loss can devastate a company. Key person insurance can provide some income to help ease the transition while the surviving partners look for someone that can take over the duties and fill the void.
Depending on the speed with which the company is developing, partners should revisit their Buy-Sell Agreement every three to five years. Making sure it correctly reflects the value of your company is crucial to getting through any major upsets with as little down time as possible.
Calling our Peachtree City business attorney to help you with your Buy-Sell agreement could save you later. Call 770-486-1220 today to schedule an appointment to discuss Buy-Sell agreements and other GA business law.