Business Law & Commercial Litigation
By the Business Attorneys at Garg & Associates, PC, serving The Woodlands, Spring, Houston, Conroe, Humble, Kingwood, Tomball, Cypress, Huntsville, Westchase, Southwest, Sugar Land, West Oaks, Alief, Memorial, River Oaks, Stafford, Katy, and Missouri City.

Buy-Sell Agreements

Buy-sell agreements are not related to buying or selling businesses. They are agreements between a business’s co-owners that spell out who can buy an owner's interest, and at what price. Buy-Sell agreements deal with the exchange or sale of ownership interests in companies in the event a co-owner decides to sell his interest due to a financial need, is fired or resigns, cannot work in the business due to sickness or incapacity, retires, or simply dies. Buy-Sell agreements provide the framework under which the sale of an interest takes place and are a necessity in businesses with more than one owner.

One of the most important parts of a buy-sell agreement is the share price.  It is important to make sure that the shares price is fair to the buyer and the seller.  A Woodlands business attorney can help you to figure out the correct price.  Many factors will usually play a part in determining share price. Some factors are the book value of the company or an appraisal or any other amount that is agreed upon by both parties.  The price of the shares should never be unfair to either party.

Buy-sell agreements can be structured to fit the specific needs of the business owners.  A Woodlands business attorney can make sure that all of the agreement’s provisions are legal.  Some buy-sell agreements contain buyback clauses that allow a buyback of sold shares due to financial hardships.  In addition to the buyback provision, the agreement should probably contain language that will limit to who the shares can later be transferred to or sold to and perhaps a firm share price. As important as the buyback provision is, there also needs to be a provision for valuation of the shares. Whether by appraiser or formula, the fact that the parties have agreed to a methodology beforehand resolves potential conflict that oftentimes surrounds valuation.

Buy-sell agreements need to have sale terms also. That is, if the business cannot afford to pay 100% of the buyout price in cash, flexible sale terms would be needed. The owners are free to contract with each other regarding the sale terms.

Buy-sell agreements can also be structured to protect the business in the event of an owner’s bankruptcy, which can have a devastating effect on the business. The agreement should contain a notice provision whereby the party filing for bankruptcy is required to notify the other owners of the impending filing. This notice also serves as an automatic share sale offer. The sales proceeds then are paid to the bankruptcy trustee and the business operations remain unaffected.

Buy-sell agreements can be very complex.  No one wants to sign such an agreement only to find out later that they did not get everything that they should have or that something important was left out.  A Woodlands business attorney can help you make sure that you have drafted a buy-sell agreement that is legally binding, protects the parties and does not leave any issue unaddressed.

Call Garg and Associates today at 281-362-2865 or complete our Contact Form and let us assist you with your business law services and litigation needs.