A buy-sell agreement sets conditions on a company owner’s ability to sell their interest in the company and on who can buy their interest. Now if you own a company, you may be wondering why you would want to restrict your ability to sell your interest. For starters, a buy-sell agreement can set conditions for events in which your interest is being transferred out of your control, for example divorce and death.
A buy-sell agreement also protects owners and investors in closely held companies. If you start a business with your long-time business partner, Bob, you want to work specifically with Bob and not whoever Bob can sell his interest to. Buy-sell agreements are also very helpful if you give employees any interest in the company such as through an employee stock option program. Buy-sell agreements can require that the employee sells their stock back to the company or an owner of the company. Conditions can also vary depending on whether the employee retires, leaves the company voluntarily, or is terminated involuntarily.
Lastly, buy-sell agreements are very important if there are restrictions on who can have an interest in your company, such as some professional companies like law firms. Part 2 will go more in depth on the various arrangements and conditions your buy-sell agreement may have.
To get started on your buy-sell agreement or to review one that you currently have, contact one of our business attorneys in our Sioux City, Sioux Falls, or Omaha locations.