If you have a business partner or partners, you should consider drafting a Buy/Sell Agreement for your company, which is like a prenuptial agreement for your business. A good Buy/Sell Agreement should minimally address the following:
1. How is the business valued and by whom?
2. What is the amount of each partner’s share, and how is it valued?3. Who gets to buy out the other partner(s) in the event of company dissolution or disagreement over company direction?
4. Are there any restrictions on transferring the shares of the company?
5. How will the buyout take place (i.e. over what time period, cash only, or payment from a loan or other assets)?
6. If the partners are married, their spouses should sign an agreement that they will not become partners in the business by will, divorce or other means (Spousal Consent Agreement).
7. If the partners cannot agree on the above, specify a method of dispute resolution, such as mediation or arbitration, paid for by all partners.
8. What shall be done with a partner’s shares in the event of his/her permanent or temporary disability or death?
9. Are there rights of first refusal by remaining partner(s) to buy out shares of departing/deceased partner(s)?
10. What time frame is given to partners when the business will be sold to them or outside parties?
11. Who owns the patents or trademarks (if any)?
A Buy/Sell Agreement is best drafted at the beginning of a company’s life, when everyone still likes each other. Often it will point out possible issues among partners way before they come into being, and allow them to be addressed in a fair and unemotional way. By having each partner buy into the Agreement, a lot of time and effort can be saved in the event of a split.