Starting a new business is an unequal blend of exhilaration and pressure that most entrepreneurs thrive on. Depending on their financial position and size, they may be solely responsible for managing operations, product development, provision of services, and marketing. Though it is understandable, many new business owners overlook or simply don’t have time to address legal issues. One element business owners—especially small ones—should prioritize early in their business’s life cycle: the Buy-Sell Agreement.
Protection & Continuity
The first point we should address regarding buy-sell agreements is how they can facilitate your business’s continuity. Companies, especially those in their early stages, face significant uncertainty. Consider the owner who leaves the organization due to health concerns or other personal reasons. By having a buy-sell agreement in place before that happens, you will ensure that your business’ operations don’t halt in their absence. Buy-sell agreements can outline the conditions for buying the departing owner’s interest and, perhaps even more importantly, have an agreed-upon method for valuing it.
Businesses with a solid succession plan in the form of a buy-sell agreement can become even more attractive to potential investors. They signal maturity, foresight, and put forth an image of stability. Investors can be confident in the company’s longevity because there will be a defined roadmap for potential ownership changes.
Safeguarding Personal & Family Interests
Buy-sell agreements indirectly provide a layer of financial security and protection for your family. Businesses result from years of deliberate work, passion, and financial investments. For many owners, it will be one of their more significant assets. A buy-sell agreement ensures your family receives a fair value of your business interest in the event of unexpected tragedies. View it as a shield for your family’s financial future.
Estate taxes can also take a toll on your estate. A structured buy-sell agreement can effectively minimize this burden. You may be able to reduce the estate’s overall taxable amount by setting the stage for your heirs to sell your business at fair market value.
In addition to what we have discussed, here are some things to consider when making a buy-sell agreement:
- Deciding the purchase price based on the business’ value.
- Landing on an appropriate method for valuing the business.
- Thinking about the funding mechanisms for the purchase.
- Considering what types of events would cause the buy-sell agreement to be executed.
- Specifying conditions in which you would terminate the agreement.
A Level of Certainty
Though the future is unpredictable, buy-sell agreements enable you to plan for various circumstances. They will help you navigate challenges by providing clarity and security to those interested in the company and its success. Those who decide to incorporate a buy-sell agreement into their planning process are not leaving the future of their business—and the financial security of their loved ones—to chance. Developing an effective plan that requires experienced legal counsel. Schedule a consultation with Beckemeier LeMoine Law today and make the step toward securing your business’s future.
Call 314-965-2277 now or contact us online to schedule a consultation with one of our highly skilled attorneys today.