Scarinci Hollenbeck, LLC
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201-896-4100 info@sh-law.comFirm Insights
Author: Scarinci Hollenbeck, LLC
Date: October 8, 2019
The Firm
201-896-4100 info@sh-law.comNo one wants to think about leaving a business, particularly when it’s just getting started. But you should. Having a plan in place for when a business owner wants to sell his or her stake or when a business dispute arises can mean the difference between having a going concern or a defunct entity, in some circumstances.
It’s not uncommon for business owners to want to sell their interests, whether they are retiring or simply ready to cash out or there is a difference of opinion between co-owners. However, many startups and other small businesses fail to think ahead, which can lead to disputes over ownership rights, control and finances.
Buy-sell agreements can be stand-alone agreements or be contained within an operating agreement, partnership agreement or stockholders’ agreement.
In basic terms, a buy-sell agreement lays out an exit strategy for the owner-operator of a business. In addition to addressing what happens when an owner-operator wants to leave the business, it can also address a myriad of other events, including what happens when an owner-operator retires, dies, becomes incapacitated, or even gets divorced, or is failing to perform as intended.
When a “triggering event” occurs, the agreement gives the company or certain other owners the right to buy the departing owner’s interest. To help facilitate that process, the agreement details the price and terms of the buyout.
While the specific terms of a buyout agreement should be tailored to your business, at minimum, the agreement should address the following issues:
Being unprepared for significant changes to your business can often lead to legal headaches. The departure of an owner is no exception. Whether you chose to include buy-sell provisions as part of a written partnership agreement or execute a separate agreement altogether, it is imperative to have a plan in place. For guidance, we recommend consulting with an experienced business attorney.
If you have any questions or if you would like to discuss the matter further, please contact me, Jeff Cassin, or the Scarinci Hollenbeck attorney with whom you work, at 201-806-3364.
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