Many people believe that a buy-sell agreement is a contract involving the sale of a business, though this is a misconception. A buy-sell agreement is a contract that business owners should have in place to protect their ownership rights and operations should something happen to one owner.
Business owners experience many personal life events that can affect their business interests. For example:
- When a business owner gets married, their interests moving forward become marital property.
- If an owner gets divorced, a share of their business interests might go to their ex-spouse.
- If an owner needs to file for bankruptcy, it can affect the business in some situations.
- If an owner becomes incapacitated, the authority to make business decisions for them might go to a power of attorney.
- If a business owner passes away, their ownership interests might pass to their spouse, children, or other beneficiaries.
When something happens, the last thing remaining owners want is for the wrong person to gain an ownership stake. Say one owner gets divorced, and their spouse receives part of their interests. They do not want the spouse to suddenly have a say in business decisions and operations if they have no experience with the company. Similarly, you do not want young adults to inherit their parent’s business interests and suddenly have authority.
A buy-sell agreement prevents such transfers of ownership interests. It gives the remaining owners the opportunity to purchase the interests first to keep the business ownership intact.
Buy-sell business agreements are complex – yet necessary – contracts for all business owners. Bountiful Law assists clients with drafting and negotiating all necessary agreements, including buy-sell and operating agreements. Contact us to learn more about how our Snohomish County business lawyers can help.