Business/Corporate Buy-Sell Agreements & Departing Business Owners
Buy-Sell Agreements are in place to address what happens to a departing business owner’s shares/interest in a business. Can the departing owner take them with him and still collect profits? Do they automatically revert back to the business or other owners? What happens if the departing business owner is forced out? Does it matter if the departure is voluntary (e.g., “I quit”) or involuntary (e.g., death/incapacity). There’s a lot to address — and business owners can be creative and reduce pretty much any arrangement they desire to writing.
Nonetheless, there appears to be three dominant approaches to buy-sell agreements.
(1) Redemption Agreement. The business itself purchases the departing owner’s interest.
(2) Cross-Purchase Agreement. The remaining business owners purchase the departing owner’s interest.
(3) “Hybrid” Agreement. Either the company or remaining business owners have an exercisable option to purchase, and if the former does not exercise its option, then the latter can purchase.
The structure of a buy-sell agreement will largely depend on the nature of the business and how each individual owners personally estate is configured. Contact us with any questions regarding the creation, analysis, or interpretation of a buy-sell agreement or other business/corporate documentation.