Why is a Buy-Sell Agreement so Important

Buy-Sell Agreements

6 Things To Know About Buy-Sell Agreements

How would you like your business partner’s ex-spouse to help run your company? Does it sound like fun to have a bank own part of your business should your co-founder file for personal bankruptcy?

Without a buy-sell agreement in place, business owners risk facing these scenarios and other situations that can disrupt the business and hurt its value.

Having a formal agreement can define a desired exit strategy and ownership succession plans, providing a roadmap in the event of a death, divorce or disability, says Rachel Flaskey, a senior manager in the valuation services practice of Baker Tilly, a top 15 accounting and advisory firm in the U.S.

“Those are all circumstances that can be planned for somewhat,” she says. “But you also have the unforeseen circumstances: an argument or the shareholders aren’t clicking anymore. Or maybe you want to allow future owners into the business.”

A buy-sell agreement allows entrepreneurs to know up front who can buy in to the business and how the process will work, and it provides opportunities to talk about possible scenarios rather than forcing owners into expensive litigation down the road.

It’s one form of a business continuity tool,” Flaskey says.

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