Courtesy Bond Schoeneck & King
By Frank C. Mayer
It’s been said that all good things must come to an end. This includes an ownership interest in a closely-held business.
Many successful business owners concentrate so much of their creative energy and talent on growing their business that they may not set aside the time for, or may choose to put off, making critical decisions about how they plan to deal with the eventualities of life.
Among the important questions that the owners of a closely-held business should address are: How long do I want to be in business? What happens if I become ill or pass away? Will I be able to preserve the value of my business for my loved ones? If something happens to one of my business partners, how do I prevent an unwanted third party from acquiring an ownership interest in the business?
These threshold questions are easily addressed in what is commonly referred to as a buy-sell agreement, which is a binding agreement between the owners of a closely-held business. By entering into a buy-sell agreement, the owners of a closely-held business can take some comfort in knowing that a well-considered plan is in place to smoothly guide both the owner and the business through the transition process.
A buy-sell agreement may be used by various forms of businesses, including corporations, limited liability companies, and partnerships. Buy-sell agreements are typically structured as a cross-purchase transaction, as a redemption transaction, or as a combination of a cross-purchase and a redemption.
