San Diego Business Law

A proper buy-sell agreement for your San Diego small business

If you own a company with anyone other than your spouse, you need a buy sell agreement. Also called a buyout agreement, or a business pre-nupt.

A proper buy-sell agreement, will protect all business owners when one of the co-owners wants to leave the company. It will protect the remaining business owners as well as the one leaving. If an owner wants to retire, sell their shares, goes through a divorce, or even passes away, the agreement will have clear, defined procedures that the owners are bound to. It will set the terms and prices for such a buyout. Each day a co-owned business is without an agreement is a financial risk

I have personal experience with this as a company I was hired to be General Counsel for was going through the process of buying out a deceased partner’s share. The kicker here is, that there was a buy sell agreement. However, it was a boilerplate buy sell agreement, meaning it came in a form and was not modified for this particular business. So it did not take into account the particular concerns with this highly regulated business and it was a much messier process than it should have been.

So a proper buy-sell agreement for your California small business will take into account what the owners want to happen if one of these triggering events occur. Do the co-owners care if one of the owner’s spouse is a managing partner should that partner pass away? Or divorced? Do the owners want to allow unknown partners if one owner wants to sell their share to a 3rd party? How do you value the interests when one of these triggering events occur. Business valuation is a complicated and involved process. Sometimes you can simplify it with an agreement. Other times you don’t want it to be so simple.

These are just some of the questions that would be raised in a detailed buy-sell agreement planning session.

Leave a reply