As a business owner, one of your primary concerns is overseeing the health of your business. Therefore, we have prepare this presentation so you can learn how to protect your business with a Buy/Sell Agreement. So lets get started!
6. What is a
Buy/Sell
Agreement?
(Also known as a buyout agreement)
Is a legally binding contract designed to
deliver a detailed game plan for how the
remaining co-owner(s) are to carry on
in the event one of you leaves the
business.
8. This
Departure
could be the result of a
number of different factors
Including retirement, desire to sell
shares, disability, divorce, individual
debt default or bankruptcy,
disagreements among the owners, or
death.
11. Some refer to the Buy/Sell as a
“business will.”
It is designed to protect the company – to
make sure important things are taken care
of – if someone leaves.
12. advantages:
• It maintains the continuity of your business by making sure
members get to decide what happens to the business before
trouble arises.
13. advantages:
• It maintains the continuity of your business by making sure
members get to decide what happens to the business before
trouble arises.
• It protects company ownership by laying out a succession
plan for departing members. This keeps remaining members
from being saddled with untested successors.
14. advantages:
• It minimizes disputes between remaining co-owners and the
family of the departing owner by having a strategy in place
ahead of time to govern business operations.
15. advantages:
• It minimizes dispute between remaining co-owners and the
family of the departing owner by having a strategy in place
ahead of time to govern business operations.
• It alleviates co-owner stress and uncertainty by specifically
identifying which events would trigger a buyout.
16. advantages:
• It protects business assets and liquidity by providing a
financial (and tax) plan for each of the different triggers
addressed in the agreement.
17. advantages:
• It protects business assets and liquidity by providing a
financial (and tax) plan for each of the different triggers
addressed in the agreement.
• It protects the interest of, not just the business entity itself,
but also that of the business owners (and their families in the
case of death/disability) to ensure are handled with respect,
courtesy and the utmost fairness.
20. cross-purchase
Allows remaining owners to buy out
the ownership interest of the
departing co-owner.
Redemption
Enables the business entity itself to
reclaim the ownership interest of the
departing owner.
21. No matter which type of agreement you choose,
it will need to address four key business issues:
• The Succession Plan
• Triggering events
• Funding Sources
• Buyout Price
23. Succession Plan
The first question your Buy/Sell Agreement
should answer is this:
Who can buy the departing
owner’s shares or interest in
the company?
25. Succession Plan
The loss of key personnel can be
devastating for a business.
It affects how the business is managed
and impacts company sales,
creditworthiness, market share and its
overall market value.
26. Triggering events
What will trigger a buyout?
Triggering events guarantee owners that upon the
occurrence of specific events their shares of stock
will be bought out.
28. Some of the most common
reasons for buyout are:
29. Some of the most common
reasons for buyout are:
disability, divorce, debt and death.
30. disability
An owner who has become disabled and is
no longer able to perform his or her duties
may need to be bought out in order to
protect the integrity and liquidity of the
company.
The Buy/Sell Agreement should specifically define what constitutes a disability.
31. divorce
An owner who is in the midst of a divorce
may be bought out to protect the
company’s ownership. It’s not uncommon
for a family law judge to order a business
owner to split his or her interest in a
company with the former spouse.
32. divorce
A clause which ensures the former spouse
will sell those shares back to one of the
company’s original owners or to the
company itself can protect your company
from being torn apart.
33. Debt
Credit isn’t easy to come by and a blow to
your company’s credit rating can result in
thousands of dollars in unnecessary fees
being levied on your business.
34. Debt
Credit isn’t easy to come by and a blow to
your company’s credit rating can result in
thousands of dollars in unnecessary fees
being levied on your business.
Particularly for small businesses,
individual owners are often on the
hook as personal guarantors for any
and all business debt.
35. Death
The death benefit paid to the family of a
deceased owner is going to be the largest
buyout payment of any of the aforementioned triggering events.
36. Death
It is often the case that key personnel / coowners are covered by company-paid life
insurance policies which are issued with a
face value equivalent to the buyout price.
If a shareholder dies, the life insurance
policy pays the company and the company
buys shares back from the decedent’s family.
38. Funding sources
Where will the money come
from to complete the buyout?
Are the individual owners responsible
for initiating the buyout?
39. Funding sources
Where will the money come
from to complete the buyout?
Are the individual owners responsible
for initiating the buyout?
Or will the company be used as the
funding source to buy out a
departing co-owner?
41. buyout valuation
What is the price of the buyout?
Buyout prices vary depending on the
buyout trigger and market conditions.
42. buyout valuation
What is the price of the buyout?
Buyout prices vary depending on the
buyout trigger and market conditions.
Company appraisals can help ensure the
company does not overpay for shares as well as
ensure beneficiaries are not underpaid for their
shares. Each trigger could have a fixed price
44. The rule
in business is always to prepare
abundantly before.
You can’t predict the future and often, you can’t
stop hard times from touching your business.
You can do what’s necessary to minimize its
impact, however.