Why A Valid Buy and Sell Agreement Is Vital For Small Businesses
James Turner
If you can just imagine for a moment that you are in business and you have a partner, so that the both of you are able to manage the business successfully. The business is doing well, you operate it in accordance with all of the local laws and regulations, pay your taxes on time, resulting in a strong presence in your community which views your establishment as a solid economic unit. Next imagine that your business partner has to go through some very negative personal experience such as a divorce, a major illness, or he might have to declare personal bankruptcy.
How would this affect your business in such circumstance? In the case of a divorce, would his ex-spouse become a partner in the business, and if so, how would she be able to hold up her end of the partnership if she had no knowledge or talent in the business? Or would the courts rule that his share of the business be given to one of his children? What about your partner’s death, disability or early retirement due to illness? Would the business be worth less money? Or would you be the sole owner of the business?
These are questions that need to be faced and the answers determined beforehand, and in case the situations do occur they outcomes are dealt with in a valid buy and sell agreement. In essence, such an agreement will cover each and every situation possible as far as the outcome and the final disposition of the business. If a buy and sell agreement is in place when these types of situations occur, the agreement will decide what legally will happen to the business.
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Every business that has two or more people in the rank of ownership needs such an agreement, otherwise the remaining owner or owners will more than likely be faced with the hard fact that relatives of the displace owner will suddenly become owners and partners of the business. This is not necessarily a good situation because of their potential lack of ability and inexperience and potentially their inability to carry their share of the load.
In the case of death or disability, the situation is easily solved by life and disability insurance that triggers the sale of the deceased or disabled partner’s share from the estate or family in exchange for the proceeds of the insurance. Then the remaining partners own the business outright and the heirs have the money, or value of the business.
In the case of a divorce, it can be stated in the terms of the agreement that the business will buy out the affected partner’s interest with an instalment agreement over a period of time. It might be possible to insure that eventuality too. There could also be a choice stated in buy and sell agreements where the remaining business owners or business owner, as the case may be, could decide to include the spouse or other relatives, if that would make good business sense.
If you are concerned about your business, then you should contact a business lawyer North Shore-based for companies in that area of Auckland. McVeagh Fleming Partners are the largest legal practice in Albany and have plenty of skilled lawyers who can help you. There are more details on their website www.mcveaghfleming.co.nz/.