by Jennifer A. Grady, Esq.
Failing to create a formal transition plan in the event of the death, disability, retirement, or divorce of the business owner, or the transfer or sale of the business, is a drastic mistake that is frequently made by the owners of closely-held corporations. This lack of planning can be fatal to a business that does not have a formula for valuing tangible property, such as vehicles, real estate, and equipment; and intangible property, such as licenses, trade names, patents, trademarks, client lists, and goodwill.
A buy-out agreement, also known as a buy-sell agreement, is a legally binding contract between co-owners of a business that governs the situation if and when a co-owner dies or leaves the business. Every co-owned business needs this agreement the moment the business is formed, or as soon as possible after the formation. A buy-out agreement not only protects the remaining business owners when a co-owner intends to leave the company, but also provides protection for the owner who leaves the business. A buyout agreement acts as a sort of “premarital agreement” to protect each owner’s interests by setting the price and terms for a buyout. It is sometimes referred to as a “business will.” Continue reading