Buy-Sell Agreements

Buy-Sell Agreements Lawyer in Sandy Utah

Buy-sell agreements will be an outline of what happens to an owner’s share of a business when an extenuating circumstance occurs. If an owner wants to leave, retire, or pass away, their ownership and assets will need to be transitioned to other parties. Depending on the event that occurs, buy-sell agreements can vary. Some will be funded by life insurance or by disability insurance. They may also be paid out in different ways including cash reserves, loans, or installations.

Common Trigger Events

There are specific events that need to occur before a buy-sell agreement is activated. Here are some common trigger events and more about how they are handled. 

• Death: Are beneficiaries entitled to fair market value? Do the existing owners want the beneficiaries to be involved in the business?
• Divorce: Is the business an asset that could be a case of property division in divorce proceedings?
• Disability: If an owner becomes disabled, will a business gain capital? Should other owners take the disabled owners’ share or purchase the interest? 
• Withdrawal: Should restrictions be put on the interest of the departing owner? Is it reasonable to force the leaving owner out of their share?
• Bankruptcy: Will collectors have the right to seize the assets of an insolvent owner? 

Types Of Buy-Sell Agreements

Finding the right agreement will allow you to have a financially competent business, but if the wrong agreement is chosen, it could restrict your interest or prevent the ability to use your business interest as collateral. There are several agreements to exist, so each business will need to understand each agreement type. 

Cross-Purchase Agreement

This agreement is between business owners as each owner has an interest in any additional owners. All remaining owners will discuss the departing owner’s interest and determine the price that the departing owner will pay. When co-owners buy the departing owners’ interest, they increase their capital gain. These are often funded by disability or life insurance policies.

Entity-Purchase Agreement

Commonly used by partnerships or sole proprietorships, entity-purchase agreements are between the business itself and the owners. A triggering event will need to occur for this buy-sell agreement to be enacted. The business agrees to purchase the departing owner’s interest at a pre-determined price. However, if the fair market value is higher than the original agreed-upon purchase price, the remaining owners will not receive any capital gain. 

Wait And See Or Hybrid Agreement

This agreement is a combination of the above two agreements. The buyer of the business’s interest is not identified in the original contract. The buyer could be an entity, other owners, or both. The company will receive the offer to purchase the shares first, if they fail to purchase the shares, it will fall to the remaining owners. If the owners do not purchase, the company is obligated to.

Who Needs A Buy-Sell Agreement?

All businesses that have multiple owners can benefit from a buy-sell agreement. Helping to plan for the future will save you in an unexpected event. Here are some specific businesses that can benefit from setting up buy-sell agreements. 

• Partnerships
• Small businesses
• Family-owned businesses
• Corporations with multiple shareholders
• Businesses in high-risk industries
• Businesses with key employees as owners
• Complex ownerships
• Professional practices
• Owners looking for succession planning
• Co-owned real estate

Benefits Of Buy-Sell Agreements

Setting clear guidelines for the future will help ensure the business stays stable with the loss of an owner. Some of the benefits of buy-sell agreements are listed below.

1. Prevents disputes: Having clear guidelines for your business will reduce conflict among owners, heirs, or employees. Clear guidelines will ensure that business can continue as usual.
2. Ensures continuity: The agreements prevent business disruptions that could occur when trigger events occur. Agreements will prevent a lapse in business that could cause additional financial issues.
3. Maintain control: Buy-sell agreements will restrict who can buy shares so that ownership stays with trusted parties. Selecting owners or buyers before a triggering event occurs will limit emergencies or repercussions.

More About WW Partners

Our legal team has the expertise to work with many different businesses and owner types. WW Partners wants to help you plan for your business future and determine that ownership is transferred correctly. Having a legal team that supports you and makes time for you will bring more peace of mind. Our lawyers have many years of experience in helping improve business operations, interest transfers, and the sharing of assets. Reach out to us to learn more about legal proceedings and how our guidance can help.