Business owners work hard to build and sustain their company. Therefore, it is important that they protect it by every means possible.

A buy-sell agreement can help a business to survive litigation proceedings, including divorce, where a party may try to take part of the company. There are a few key factors to understand about this type of agreement.

What it is

A buy-sell agreement details the means by which the owners, partners and shareholders of a business may conduct the buying and selling of the business by detailing a succession plan for any party with a stake in ownership to exit the business. It also restricts owners from transferring their part of the business to third parties. There are a few different ways that a business may construct a buy-sell agreement; however, the constructs of the document must be in accordance with the business laws.

Its components

Along with detailing the procedures for any changes in ownership of the business, a buy-sell agreement should have a few additional components. If the owner has any specific expectations or requirements, the agreement should state them clearly. For example, if an owner is concerned about a spouse seeking ownership during a divorce, the owner can put a stipulation in the agreement restricting the ex-spouse’s ownership. The document should also detail the proceedings should a party breach the agreement.

Its benefits

A buy-sell agreement provides a clear plan for the business, should certain triggering events happen. Particularly in the case where a business owner dies, having this agreement in place is beneficial to keep the business moving and to make sure that it goes to or remains in capable hands. The agreement may also provide the surviving family with necessary funds from the sale to cover funeral expenses and additional needs they may have. In the case of an owner becoming disabled, the funds may help with the owner’s living expenses.