Have you considered the estate plan for your business?  Business lawyers do not call buy-sell agreements “Wills” or “Estate Plans” for a business, although they should since they serve a very similar purpose in a different context.  Wills provide for an orderly disposition of a deceased person’s assets, while Buy-sell agreements provide for an orderly disposition of a business owner’s interest in a company (at death, divorce, disability, bankruptcy or other “trigger” events). 

Florida Buy-sell agreements generally also restrict the free transferability of the shares of stock so that the shares remain under the control of the existing owners, unless the parties agree otherwise.  A purchase price mechanism is usually included, with payment terms addressed, so that the parties will not need to consider them at a time when it may be difficult, if not, impossible to negotiate.  Sometimes life insurance is purchased on the lives of the individual owners in order to assure that the funds will be available for a purchase. 

Most Buy-sell agreements would require the sale of stock either to the remaining owners (referred to as a “cross purchase”) or to the company (referred to as a “redemption”) upon a trigger event.  If the remaining owners or the corporation do not purchase the stock, then the stock could be sold to a third party.  Often, businesses with a few owners will use the cross purchase option; however, as a company increases in size, the cross purchase option becomes too cumbersome, and redemption is used. 

While there are many definitions of purchase price utilized in buy-sell agreements, our clients generally consider four of them:  book value, fair market value, adjusted book value and a formula.  Each definition has its advantages and disadvantages, suggesting that the owners carefully consider them now, but also in the future.  A pricing mechanism today may not make much sense in the future (do you remember the days when everyone said that their company was worth 6 – 8 times earnings?).

Buy-sell agreements could also provide for management of the corporation, distributions of corporate revenues and allocation of expenses.  They can also cover deadlock in decisions, which is particularly important when no one owner has majority ownership.  This type of provision is commonly referred to as a “deadlock” provision, which may require the inclusion of a neutral third party to serve on the board or mediation of the owners to resolve disagreements among them.

Just like a Will is important for you and your family, so, too, is a Buy-sell agreement for your business.  It does not matter whether you own a corporation, LLC or partnership.  Each can and should have an agreement that thoroughly details the longevity of your business.  We welcome the opportunity to answer any questions that you may have about your business planning.  Please feel free to call or send me an email.