Key Buy-Sell Agreement Clauses

 Posted on December 23, 2024 in Corporate Law

As a business owner, you are focused on growing the business while juggling day-to-day operations. As you think about your long-term business goals, you should consider having in place a buy-sell agreement. It can protect your company in the event of an unforeseen circumstance. An experienced Naperville, IL business law attorney can advise you on whether your business could benefit from signing a buy-sell agreement. 

What is a Buy-Sell agreement?

A buy-sell agreement is a tool of succession planning for your business — planning for what happens to your business in the event you or a co-owner either wants to exit the business or must do so due to an unforeseen circumstance such as incapacitation, death, divorce, or bankruptcy. A buy-sell agreement ensures your business survives changes in management, and it is an especially useful tool in partnerships, limited liability companies, and closely held corporations. 

How Can Buy-Sell Agreements Help Business Owners? 

Having a buy-sell agreement in place ensures business continuity. A buy-sell agreement outlines how remaining owners will be compensated for the interest of an exiting owner. Putting in place a buy-sell agreement creates a source of funding to make it easier for remaining owners to purchase the existing owner’s ownership interests. Finally, it also assures that those existing owner’s interests remain in good hands. 

What Are Some Key Provisions of a Buy-Sell Agreement?

• Valuation: An agreement should provide a formula that will be used to value each owner’s interest in the business. 

• Buyout triggers: These are the situations that will trigger the buyout of an owner’s interest in the company, such as death, disability, or withdrawal.

• Funding: Information on how the company will fund the purchase of an existing owner’s interests, such as with the proceeds of an insurance policy.

• Governance: These types of provisions set out how the company will operate to ensure continuing business operations. 

• Escape clause: Set out how the company will resolve a situation where there is no buyer to purchase the existing owner’s interest or the remaining owners disagree. 

Contact a Naperville, IL Corporate Lawyer

As a business owner, you know that planning for unforeseen events is part of ensuring that your business thrives. The experienced DuPage County, IL business law attorneys are here to help you draft and negotiate a buy-sell agreement to provide a contingency plan for your company. At Lindell & Tessitore, P.C., we represent business owners. Contact us at 630-778-3818 for a consultation.