Buy-Sell Agreements Funding
A buy/sell agreement, also known as a buy/out agreement, is a binding agreement between co-owners of a business that governs what happens if a co-owner dies, suffers a long-term disability, or retires. It may be thought of as a sort of premarital agreement between business partners or shareholders. Sometimes called a business will.
Many times, in a closely held business, it is difficult to sell the shares of an absent owner to the other owners. It is also difficult to determine what the value of such shares is, especially if you are no longer here to help determine what the value is. It is also difficult for a business to support the same way as before a partner in a wheelchair.
In order to be fair with all parties involved the best way is to draught a buy/sell agreement outlining what should be done in each of all these cases tailored to the business. For example, if one of the owners is disabled and not able to work in the business, how the other owner should buy out his interest, or if an owner dies, it is important to outline how the remaining owner buy out the interest of the deceased owner, and in what price.
In summary, a buy/sell agreement serves as a roadmap for the company, upon triggering certain events, to guide the remaining owners to buy all the shares and to continue the business.