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What should you include in a buy-sell agreement?

On Behalf of | Sep 13, 2022 | Business Law

Whether moving toward retirement, making a professional change or for any other number of reasons, you may decide to sell your interests in a business. Owning the company yourself or with a group of other owners, selling marks a substantial step with ranging details and implications. An essential step in this process, then, includes having and following a buy-sell agreement.

Understanding what to include in your buy-sell agreement may help ensure the orderly transfer of your interests in the company to someone else.

Valuation clause

According to The CPA Journal, your buy-sell agreement should include a valuation clause. In addition to spelling out the terms of the buyout, it will also provide a definition of value. Applying fair market value or fair value standards will affect the dollar worth assessed to the business.

Repurchase terms

In addition to specifying how the valuation of the business should work, buy-sell agreements will also indicate the terms for the purchase. For instance, this includes detailing how the buyer will make the payment or setting the interest rates for purchases made using financing.

Limit potential owners

Through a buy-sell agreement, any non-selling co-owners have a say in who comes into the group. You may include limitations in such a contract that would or would not allow owners to sell their interests to certain parties.

To help protect your rights and interests when giving or selling your business interests to another party, you may find it helpful to work with an attorney. A lawyer may review your circumstances with you and help you draft a thorough and fair agreement to transfer your business ownership.