Buy-Sell Agreement Attorneys in Georgia

Helping Business Owners Plan for the Future

One of the benefits of having a business structure with multiple owners is that you can share the responsibilities and decision-making. But this also creates a potential issue if one of the owners is no longer able to perform their duties. A buy-sell agreement is a legal provision you can have in place to ensure that there is a plan for this exact situation. Understanding how these agreements work can help you implement them into your business plan, giving you peace of mind that your business won’t suffer if something happens to one of the owners.

Just like with any other type of contract, a buy-sell agreement should be drafted and reviewed with the assistance of a business attorney. These agreements are often created when everyone is on good terms and everything is going well, and this can lead people to agree to things they probably shouldn’t. When the agreement actually has to be enforced, you may find that it doesn’t offer the protection or provisions you need. An attorney can help ensure this doesn’t happen and that you have a legally binding and enforceable buy-sell agreement.

How Does a Buy-Sell Agreement Work?

A buy-sell agreement sets up a path for transition if one of the partners is no longer able to fulfill their duties or just wants out of the business. The buy-sell agreement states that the partner’s stake in the company has to be sold to the remaining owners. This ensures that the leaving partner can’t sell their part to another person or business who would then have partial ownership and decision-making ability.

A buy-sell agreement generally lists what events trigger the agreement and what the shares should be sold for. Because businesses grow over time — or hope to — the sale amount is more likely to be listed as something like “fair market value” instead of a specific price. This ensures that the sale price is reflective of the company’s current value at the time of the triggering event.

A buy-sell agreement also helps keep business operations running smoothly. Without one, the business might have to pause operations entirely until it’s decided what will happen with the other owner’s share of the company. This can cause massive financial losses and force customers to take the business elsewhere until things are resolved.

What Is a Triggering Event?

A buy-sell agreement is designed to go into effect when a certain event happens involving one of the business partners. This is called the triggering event because the event triggers the enforcement of the buy-sell agreement. Some common triggering events included in these types of agreements are:

• Death
• Long-term disability
• Termination of the owner
• Divorce
• Personal bankruptcy
• Some types of business disputes
• Retirement
• Resignation

It’s important to discuss what triggering events to include with an attorney to ensure that all potential scenarios are covered. For example, the death, disability, or retirement of an owner clearly necessitates changes, but personal events such as bankruptcy or divorce could also impact the business and need to be included in the plan.

What Is a Cross-Purchase Agreement?

A cross-purchase agreement is a type of buy-sell agreement that is often used in cases where one partner is planning to retire or has died or become incapacitated. Through this agreement, the remaining partners have the right to purchase the partner’s stake in the company. The cross-purchase agreement will provide specific instructions for how the shares should be distributed. It’s common for the leaving partner’s shares to be distributed equally among the other owners, but this isn’t required.

Because buy-sell agreements are generally used when an unexpected event like a death has occurred, there are often provisions for the remaining owners to have the funds to buyout the leaving partner. For example, a cross-purchase agreement may be tied to a life insurance policy. If the partner dies, the payout from the life insurance policy is what is used to buy out the shares.

How Is a Business Valued in a Buy-Sell Agreement?

Every buy-sell agreement should include how the partner’s shares of the business will be valued. There are three general options:

• Including a specific monetary value that all of the business owners agree to
• Using fair market value at the time of the triggering event
• Using an agreed upon formula to assess value

For example, the owners of a limited liability company may agree that each person’s share of the business for the purpose of a buy-sell agreement is $100,000 because that is what they each put in initial capital. Assigning a specific monetary value may be the most straightforward method, but it can also seriously undervalue the business if it experiences substantial growth between the creation of the buy-sell agreement and the triggering event.

Should an Attorney Be Involved in Creating and Reviewing a Buy-Sell Agreement?

Any time you are working with legal documents that impact your business, it’s important to get counsel from an experienced attorney. Legal or tax advice should only come from those who have the proper credentials to assess your needs. While large corporations often already work with legal teams, this is just as important for small-business owners who may have fewer resources to protect their business interests.

Find out if your company could benefit from a buy-sell agreement or get help creating one when you call InPrime Legal. Our team includes experienced business attorneys who are knowledgeable about buy-sell agreements and can help you create a contract that works for your needs. Call our office at 770-282-8967 to find out more.