When you own a company with others, you should always have a carefully negotiated and drafted operating agreement governing how you run the business together. Another important contract you should have all of the owners sign is called a buy/sell agreement.
A buy/sell agreement may sound like you are getting ready to purchase or sell a company. However, this agreement does not have to do with mergers and acquisitions. Instead, a buy/sell agreement addresses what happens to an owner’s interests in the company should certain events occur. Specifically, the contract gives the remaining owners the priority to purchase an owner’s shares to prevent another party from obtaining ownership.
Some events that may trigger a buy/sell agreement include:
- An owner’s divorce, to prevent a former spouse from obtaining half of the shares
- An owner’s impending bankruptcy, to protect the interests from the bankruptcy trustee
- An owner’s retirement, to prevent the owner from gifting or selling their ownership to a third party
- An owner’s death, so they cannot bequeath their interests to a child or another chosen beneficiary
The agreement allows the remaining owner or the business itself to have the right of first refusal to purchase the ownership interests. The contract also should address the method of valuation that will be used to determine the cost of the interests, as well as the acceptable methods of payment.
Contact a Business Lawyer in Eugene for More Information
Suddenly having a new owner who may not understand the business operations or management can jeopardize the success of the entire enterprise. To prevent this from happening, you should always have a Eugene business attorney draft a buy/sell agreement that protects the ownership of the company. Call the Law Office of Megan Amelung, LCC at 541.246.8752 or contact us online to learn more today.