You crafted the perfect business plan and even found potential partners. Before you officially open business with others, you should develop a sensible buy-sell agreement. Even the simplest organizations can benefit from buy-sell agreements. It could save you from financial disaster if unforeseen circumstances occur in the future.
Buy-sell agreements help every owner of the business. It lays out what happens to ownership interests in the event of life-changing events such as death or divorce. Keep reading for the most important things you should address as you draft your buy-sell agreement.
1. Buyout triggers
Make sure you write out what events will trigger a buyout. Along with the life-changing situations mentioned previously, consider retirement, disability or failure to fulfill contractual obligations. Clearly stipulating the consequences will help potential sellers and buyers be prepared and have peace of mind.
2. Setting the price
It can be difficult to come to an agreement on a purchase price. You and the other owners may disagree, and it could easily result in a messy price dispute. Your buy-sell agreement should include procedures to settle these contentious problems, such as agreeing to let an independent appraiser set the price.
3. Anticipating tax implications
A sale or buyback of your business could have significant tax consequences. You could end up with a hefty tax payment if you sell. If you have not started your business yet, you should consider a structure without surprises, such as an S corporation.
These are some of the top things you should consider about buy-sell agreements, according to Forbes. Starting a business is exciting, but it comes with its fair share of complications. If you do not prepare for these things early, you could end up with a lot of trouble down the road. By staying on top of legal matters and drafting the right documents, you can set your business up for success.