When starting a business entity, there are many steps necessary to ensure that you maximize the chance for the success of the organization. It is also important to protect your investment and your legal interest in the business. This means that if you are working together with others or entering into a Joint Venture, you need to think about what might happen if one or more of the co-owners dies, becomes disabled or decides to leave the business.
To protect yourself and the other co-owners, it is a good idea to have a Buy-Sell Agreement when starting a business. This is a negotiated, legally-binding Contract between co-owners of the organization that provides essential details on the rights of departing owners as well as the rights of those who continue to operate the organization. Lotzar Law Firm, P.C. can provide assistance with the creation of a comprehensive and enforceable Buy-Sell Agreement.
Why it is Important to Have a Buy-Sell Agreement When Starting a Business
Investors or owners in a large publicly-held corporation can easily value and sell their interest in a business on the open market. For smaller businesses and privately held companies, however, it is much more difficult to place a value on an ownership share. This makes it complicated for a business owner to make an exit from a smaller organization he is involved in while ensuring that he is paid a reasonable sum for the value of his interest in the company.
When the co-owner of a smaller business leaves the organization, there are also myriad challenges for remaining owners. If the share of the business is given, or sold, to someone new, this person could end up with a controlling stake or with a large enough ownership interest to interfere with business operations. The co-owners may not want to work closely with the new person, and there may be significant disagreements about how to operate the business and the direction to take the company. All of this can undermine the success of the enterprise and can, in some cases, cause the organization to become inoperable, unprofitable or defunct.
You may be able to prevent these undesirable outcomes if you have a Buy-Sell Agreement. The Agreement can specify how a departing owner’s interests in the business should be valued or what the departing owner should receive for his share in the enterprise. The Agreement can also specify limitations or restrictions on who the departing owners may transfer their interest to when leaving a business. For example, a Buy-Sell Agreement may give remaining co-owners the right to purchase a deceased owner’s share or the first Right To Purchase the shares of an owner who is selling.
These types of agreements are generally intended to protect all co-owners of a business in the event of death, disability, departure or divorce. An experienced Scottsdale Arizona business law attorney can assist in determining if you need to have a Buy-Sell Agreement when starting a business and can work with you to create an Agreement that is right for your organization. Call today to schedule a consultation and learn more about the top-notch legal help an attorney can provide.
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