What is a buy sell agreement?

On Behalf of | Oct 19, 2019 | Contract Law |

One of the most important parts of putting together a business partnership is providing for ways for the partnership to end. Business partnerships do not last forever, and an abrupt end to the partnership that you are not prepared for could cause serious harm to your company or even terminate it completely. That is why North Carolina business owners often include buy sell agreements into their contracts.

As explained by FindLaw, a buy sell agreement, also called a buyout, is a way to settle what happens to the ownership interest of the partners in the event a partner wants to leave the business or if one of the partners unexpectedly dies or is disabled and can no longer function as an active part of the business. A buy sell agreement is sometimes part of an overall business contract. Alternatively, it can exist separately as its own contract.

Business partners can use buy sell agreements to describe various ways to transfer business ownership from a partner. In the event a partner wants to leave the business, the agreement can set a formula to valuate the ownership interest. Buy sell provisions can also dictate who is allowed to buy an ownership interest. Partners may choose to include or exclude buyers as they see fit. In addition, partners may dictate the kinds of events that trigger the buy sell agreement.

Businesses compose buy sell agreements to deal with unexpected events. Sometimes a partner voluntarily retires, but a partner may also become disabled or die. In addition, a partner may be convicted of a crime and incarcerated. Some partners file personal bankruptcy or get a divorce. A buy sell agreement can address any of these eventualities and prevent them from imperiling the business or causing the ownership interest of a partner to fall into the hands of an undesired party.

Buy sell agreements may have to address many issues, but properly composed, they can save business partners a lot of grief. Since North Carolina business partners have differing concerns for their companies, only read this article as general information and not as a substitute for the advice of a professional business attorney.