Buy-Sell Agreements

Kauffman’s eVenturing site has put together a new collection of articles on buy-sell agreements. Clear buy-sell language needs to be a fundamental part of any shareholder/partnership agreement. Although you and your partners get along great as you set up your business, things can change. Partners may need to part ways for any number of reasons:
– One partner wants to retire
– One partner is just ready to go “in a new direction”
– Fundamental business disagreements
– Death or disability of a partner (Insurance can be an important tool for this situation)
What ever the reason, the rules of a partnership break-up require a clear understanding of how and under what circumstances the partner can leave, and what it will cost the remaining partners for his/her departure.
The collection at eVenturing includes a nice group of war stories, some how-to’s, and a few tools and techniques.
The best time to set up a buy-sell is when you start-up the business. And while it is never too late, the longer you wait the more complex and expensive it can get.
You and your partners should use the type of resources this site and others can provide to iron out how you want your agreement to look. Don’t just think about how and when a buyout might happen, but the valuation method to use as well. Think about how you want to be treated if you are the one to leave. Too many entrepreneurs assume that they will be the last one in the business and try to find ways to “stick it to the other partners” when they leave first. This is the classic situation where you should “do unto others as you would have them do unto you.”
Once you get a clear understanding between partners, then you should go to your attorney to get it formalized. It will cost you much more and not be as true to your wishes if you go to the attorney too soon. And never just completely defer this important agreement to your attorney to figure out. The attorney’s job should be just to put into legal language you and your partners’ understanding of what would be fair to all.
This is hard stuff to talk about, but I believe it is one of the most important things to plan for in your new business.