Business Buy/Sell Agreements
It is important that businesses with more than one owner have a written buy/sell agreement specifying what happens when an owner withdraws from the business. A buy/sell agreement is a contract between the owners (or the owners and the business entity itself) that establishes rules and restrictions applicable to changes in ownership.

The typical buy/sell agreement provides that an owner's interest in the business will be sold (or at least offered for sale) at a specified price to the other owners and/or to the business entity itself upon the occurrence of specified events. This prevents unwanted persons from becoming members of the ownership group and ensures a ready market for closely held ownership interests. It also provides liquidity to a deceased owner's family and assures the remaining owners that they will be able to continue the business without interference from the family of the deceased owner. Buy/sell agreements also offer estate planning benefits by establishing a value for the business prior to an owner's death.

Common methods for determining the purchase price under a buy/sell agreement include: establishing a fixed price in the contract; requiring an independent appraisal; or specifying a formula such as a percentage of book value. Events that trigger a buy/sell agreement are specified by the owners in the contract. Generally, buy/sell agreements are triggered by any circumstance that might cause an owner to dispose of an ownership interest such as death, disability, bankruptcy, or retirement.

The best time to establish a buy/sell agreement is now, before a problem develops. If you do not have a buy/sell agreement for your business, we would be happy to discuss their merits with you. Your attorney should be consulted in formulating the terms of a buy/sell agreement, or prior to changing an existing agreement.

Please call us at your convenience if you would like to discuss buy/sell agreements or any tax compliance or planning matter.

Levering & Hvasta, CPAs LLP offers the above information for general guidance purposes only.  Information provided on this web site should not be relied upon without consulting a competent tax or other relevant financial professional.  Please do not hesitate to contact us if you have any questions or would like to meet with us to dicuss your tax or financial planning matters.

©2009 Levering & Hvasta, CPAs LLP