All businesses with more than one owner need to have buy sell agreements between the co-owners. Ideally, the agreement should be drafted at the same time as all the start-up business documents. It will allow for the orderly transfer of ownership if such a thing ever becomes necessary as well as a fair way to place a value on the ownership interest of each party.
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Lynn Allingham of Allingham Law Offices has been serving the needs of Alaskan businesses for more than 30 years. She is business attorney with extensive knowledge in drafting appropriate buy sell agreements for co-owners of all types of business. Such agreements are contracts co-owners of a business establish on their own terms. It controls how an owner’s business interest can be sold and how the value of that interest will be determined in the event of a sale.
Circumstances that arise that may prompt the enforcement of the agreement include:
- An owner dies.
- An owner retires.
- An owner gets a divorce.
- An owner becomes disabled.
- An owner simply wants to sell the ownership interest.
- An owner declares bankruptcy.
- Any other circumstance where one owner no longer wants an ownership interest.
Basic elements of buy sell agreements
The basic elements of buy sell agreements include:
- Articulating who may purchase the ownership interest. This generally gives the non-selling owner the first option of buying the seller’s interest. If the remaining owner or owners do not want to purchase it, the agreement will include a provision that the non-sellers must approve the new buyer. To allow one owner to sell to someone the others do not like or do not think they can work with would be detrimental to the survival of the business.
- Providing for the liquidation of the ownership interest upon the death of a co-owner. When a business owner dies, a good buy sell agreement will provide for the living co-owner or owners to purchase the interest of the deceased. This avoids problems that could occur if heirs of the deceased would obtain an ownership interest and disagree about how the interest should be divided or maintained.
- Providing a basis for determining the value of the ownership interest. There are several different ways the value of a business can be evaluated. Co-owners need to articulate in their buy sell agreements the valuation method that will used when one owner wants or needs to sell the interest.
Other relevant factors need to be considered. For example, there may be anticipated tax issues that can be provided for in the buy sell agreement in addition to how the purchase of the ownership interest will be funded. The Allingham Law Offices works with all clients to put together an agreement that meets their needs.