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Buy-Sell Agreements

posted Mar 21, 2012, 8:39 AM by Bryan Berson   [ updated Sep 13, 2014, 6:46 PM ]
A well-managed business can exist in perpetuity, but ownership won’t remain the same forever. Eventually, an owner will leave for one of several reasons. The owner may retire; become disabled; die; lose a professional license; want to sell or give away ownership; or lose control of the interest in personal bankruptcy, in a divorce or by defaulting on a loan for which the interest was made collateral.

Continuing owners face the prospect of working with new owners or the caretakers of disabled owners. Outsiders include guardians, estate representatives, heirs, bankruptcy trustees, angry former spouses and creditors. An active owner may become debilitated by substance abuse. Friendly relationships may sour. While new prospective owners may be talented, responsible professionals, there is the risk that they won’t be. Without a buy-sell agreement (also called a business buyout agreement), there is no means of blocking undesirable ownership transfers. This poses a risk to the business and its value.

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