In business language, what-ifs are referred to as “triggering events”. What if I don’t want to be in this business anymore? What if I want to retire? What if I get sick? What if I become disabled? What if I die unexpectedly? For a business with multiple owners, the what-ifs include situations where only one partner is affected – or simply wants out – while the others involved want to continue running the enterprise.
What buy-sell agreements are all about is providing an orderly mechanism for a business to pass from one owner to another – when and if one of those “what-ifs” comes to pass. The time to create such an agreement, the CPA Journal urges entrepreneurs, is not during a transition in ownership, but at the outset, when the business is first being established. That way, all the owners can be involved in designing the agreement.
At Geyer Law, we couldn’t agree more, and our team focuses on helping Indiana businesses start off on the right foot, including:
- business formation decisions and legalities
- employment contracts
- selecting the right business structure
- preparing business formation documents
Not only is a carefully crafted and well thought-out buy-sell agreement part of healthy business formation, the agreement becomes a key element in the business owners’ estate planning.
What’s important to remember, quickbooks.com reminds owners, is that any business partnership is also a legal relationship. In fact, Quickbooks writer Megan Sullivan points out, putting a buy-sell agreement in place is similar to signing a prenuptial agreement before a marriage, outlining what happens if one of the partners no longer wants to be – or no longer can be – involved.
(Actually, Sullivan adds, if one of the business owners is going through a divorce, it might be in the best interest of the organization to buy out that owner’s share, preventing the business from being considered an assets in the divorce proceedings.)
With nearly two decades’ experience advising business owners, our Indiana business attorneys at Geyer Law can add another “actually” to for owners to consider: debt. Small businesses are often formed using business owners’ personal guarantees. Should one owner later default on a personal loan, that person’s share in the company might be taken by the creditor, endangering the financial stability of the business.
In a well-constructed buy-sell agreement, of course, the what-if’s don’t need to be negative events. A retiring owner should be able to redeem her shares with the payout helping to fund her lifestyle going forward.
At the same time, when a death occurs, the buy-sell agreement serves as a guide for that owner’s executor or trustee, helping protect that partner’s spouse and children while at the same time protecting the business, allowing the remaining partners to continue the operation.
When life changes affecting one partner turn out to affect the business, buy-sell agreements are there to impose orderliness amidst what might otherwise be chaos.
– by Jennifer Hammond