When there is more than one owner of a New York business, creating a New York-tailored buy-sell agreement can save time and money if a change of ownership occurs in the future.
New York business owners know that circumstances can change at a moment’s notice. That is why ensuring that your business is prepared for whatever waits around the corner is crucial. Part of being fully prepared is having a New York law compliant buy-sell agreement in place.
New York businesses of all forms and sizes with more than one owner should create a solid buy-sell agreement in anticipation of potentialities in many cases.
A buy-sell agreement, also known as a buyout agreement, is a legally binding agreement between co-owners of a business that governs the situation if a co-owner chooses to leave the business, is forced to leave the business or passes away. If the triggering event occurs, the other owners may purchase the shares of the other owners. A, typically, example is one partner to a partnership dies and the remaining partners may purchase the shares of the deceased partner for a predetermined price.
Creating buy-sell agreements comes with many advantages. First, the cost of creating a buy-sell agreement is small compared to the potential savings in time and money down the road that would be devoted to settling ownership conflicts.
Second, a buy-sell agreement stops all infighting among owners before it begins, which keeps the business afloat and its goodwill and customer base intact.
Third, the reciprocal nature of buy-sell agreements affects all owners equally, which makes it easy for all owners to agree to terms.
Finally, in the case of inter-generational businesses where ownership is passed within a family, a buy-sell agreement may be tailored to avoid estate taxes and family squabbles.
There are two types of buy-sell agreements. A redemption agreement states that the shares of a former owner can be purchased by the business itself. A cross-purchase agreement allows another owner to purchase the shares individually. Pricing terms can be pre-determined among the owners of your business, or owners can create a formula for valuation.
If drafted by an experienced New York business attorney, a buy-sell agreement can be surprisingly simple and low-cost when compared to the potential costly problems of not having this agreement. We, also, suggest, a joint venture or partnership agreement – in most cases. We shall discuss joint venture agreements on this blog in the near future.