Any small business or partnership should have a sales contract. Here is a document that describes what happens to the business when there is a particular event – such as the death or illness of a shareholder or partner – or if one of the business owners wants to sell his share. The agreement can be drafted in a way that applies to any business structure, such as a partnership, an investment fund or a proprietary company. Under a buy-back agreement, the company can acquire life insurance for the life of the owners, the death allowance corresponding to the value of the owners` shares in the business. When an owner dies, the company receives the proceeds from the policy, which it then uses to purchase the interest of the deceased owner. Of course, over time, the company must increase the dollar amount of the policy to address the growing value of the business. None of this need has happened. The above owners could have avoided the whole dispute fairly and cheaply if they had first entered into a purchase and sale agreement and the first business was probably still in operation today and the woman could have sold her interests at a fair price in the second example. Think carefully about the order of options and whether a buyback is optional or mandatory. Often, purchase-sale agreements give the remaining owners the first opportunity to acquire the transaction on a pro-rata basis. However, in the event that the owners do not exercise this option, you will pay special attention to it when fulfilling the company`s commitment.
For example, if the shareholders of a Company C are obliged to acquire the shares of the outgoing shareholder but decide not to do so, the acquisition of Company C could be considered a constructive dividend to other shareholders (because the company has committed an act that has mitigated the commitment of its shareholders). Many new business owners miss out on one of the most important aspects of creating a new business relationship: making it clear how significant changes in the future will affect the management and control of the business. What happens, for example, if your partner dies, is disabled or is unable to act in any other way? What if she asks for a divorce? Or bankruptcy? A well-designed buyout agreement addresses these and other important issues before they lament.