Take Control Control of The Future of The Business.
If you have one or more “partners” in your business, whether it is a corporation or limited liability company, in most cases you should have a buy-sell agreement. If there are more than two persons, the shareholder agreement should deal with other issues, such as quorum and voting requirements and employment agreements with minority shareholders or members.
A thorough shareholder agreement or limited liability company agreement will deal with loss of income to a disabled principal, eventual buy-out of such a disabled person, death of aprincipal, and loans to the business personally guaranteed by the principals.
You can’t stand being bugged by an aggressive insurance salesperson or being nagged by your lawyer or accountant. Your children are still in high school or college and you’re not sure whether at least one child will want to come into the business. You have no idea what the business is worth or how to find out. You get morose when you think about your becoming too sick or disabled by accident to work. You’re only 53, too young to worry about dying . In fact, the last time you updated your will was 15 years ago when your last child was born. So you have procrastinated and haven’t even started to look into having a “buy-sell” agreement.
Want to know what might happen if you or your “partner” gets unlucky? Well, if you want to get an idea of the misfortunes this can cause you, your loved ones, your “partner” and his or her loved ones and the businesses, click here for the Case Study: Mel and Len, The Mel-Len Corporation.
Handling Disability, Death, and Shareholder or Member Departure in Buy-Sell Agreements
There are many critical elements in a successful buy-sell agreement, but there are three factors that you should always address in any basic document. These include how to manage departure, death, disability of shareholders or members. Nearly every closely held business could benefit from a buy-sell agreement and these four elements should always be included.
A business can suffer financially if a person passes away unexpectedly. If a new shareholder or member, like the deceased’s spouse, steps into the business, this can generate even more problems. This is why so many buy-sell agreements outline what will happen in the event of a shareholder’s or member’s death
Disability of a shareholder should also be included in the document. Disability is all too often poorly defined or improperly funded in these agreements, so the document should address both short-term and long-term concerns of a disabled shareholder. A disabled shareholder is likely to expect his or her salary to continue as well as profit-sharing to happen, but a proper agreement will outline the circumstances under which this will unfold.
There’s another element that should be include in a comprehensive buy-sell, and that has to do with loans. More often than not, it’s easy to overlook the influence of loans made to the business that are guaranteed by the principals. A buy-sell should address how these loans are to be treated if a principal guaranteeing them leaves the company voluntarily or involuntarily.