Buy-Sell Agreements a Must For Business Success

Buy-Sell agreements are critical parts of a business’ foundation. This type of an agreement is a contract between the business partners that needs to be defined at the start of any business operations or when any new partners are added to the company. An experienced business attorney can help to create and review the buy/sell agreement for its legality, fairness, and to make sure it accounts for any unforeseen events.

The biggest obstacles most companies deal with, and nobody likes to think about them, relate to what happens if a partner should have a serious accident or illness that leaves him or her disabled, dies unexpectedly, withdraws from the partnership, or retires. A company can falter when it has a partner leave, so spending adequate time up front to create a solid buy-sell agreement (also known as, “Buy and Sell Agreement” or “Buyout Agreement”) will make sure the partnership ends in a way that sustains the business. The specifics should outline who is eligible to buy a leaving partner’s share and what the fair price is. It can also establish a buyback option. This helps to protect the remaining partners to have an appropriate new partner/owner come in and a fair price for his/her shares of the business.

Of special note in California, business partners are subject to certain property laws when they pass away. When the business partner dies, the company becomes business partners with the remaining spouse or heirs. As is often the case, these individuals might not have a clue about the business nor be interested in being involved. What they will be interested in is money. They will want payment for their loved one’s portion of the business or stock shares.

This is where setting a fair price up front or establishing a proper evaluation method comes into play. With a trusted business lawyer and a certified public accountant, a fair price can be derived from the various calculations that are typically used. These include:
– Multiple book of value: Accounts for tangible and intangible assets such as brand and trade names, copyrights, and patents
– Appraisal: Before a transfer of ownership, an experienced business appraiser will set the business price
– Book value: Price is based on assets minus liabilities from the most recent fiscal year balance sheet
– Capitalization of earnings: Value is based on past profits
– Fixed price: Current partners agree on the business price and list that value in the buy/sell agreement

Anthony Spotora is a Los Angeles business attorney , Los Angeles trademark attorney, and Los Angeles entertainment lawyer. To learn more, visit

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This entry was posted on Wednesday, November 9th, 2011 at 10:18 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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