If your agency has more than one owner, it is important that you have appropriate partnership documents. If you do not have a buy-sell agreement in any of the circumstances mentioned above, your business could be subject to division by sale. This means that a court can order the dismantling and sale of business items in order to create the financial value to which a new owner is entitled. Another jurisdiction could decide to grant ownership to a new person in one of the above circumstances, which would give that new person the same decision-making capacity as existing partners. It`s easy to ignore this contingency planning, but it`s not a question of if, but when. Planning for death, disability or retirement will not help the Agency work better today. However, good planning allows the surviving family and remaining owners to revise the difficult period with a smoother transition. An agency owner who spends his life starting a business must ensure that the company does not dissolve or sell for pennies on the dollar when they are no longer active. The terms of payment must be clearly specified. The purchase price can be paid on a flat-rate basis or can be structured with some sort of rate. The payment method must be designed in such a way as to meet the needs of the seller, the financial needs of the company, while minimizing taxes. Allow me flexibility to take into account the evolution of the amount of capital available to pay the purchase price.
The buyout contract defines the types of events that trigger the contract. Each agreement is designed to best meet the needs of each company. It may contain specifications on who can buy shares and what kind of life situation would trigger a buyback. It could also indicate how the purchase is financed. If the payment period is reasonable, instalments may be made from normal cash flows from the operation. A package must be planned in advance. It can be paid from profit reserves, a bank loan or life insurance or policy. When a co-owner is disabled, the problems for other owners of an agency are often greater than when that owner dies. Unfortunately, most agencies don`t have enough insurance. This is often insufficient. The prospect of dealing with a disabled partner is not tasty and is best addressed when all parties fully recognize the terms of the agreement and are not under duress.
Each company is unique in structure. A company with multiple co-founders would have a more complicated buyout agreement. While a sole proprietorship is often easier to design and execute. This list is intended to give you a general overview of the clauses and scenarios that should be considered in most buy-sell agreements.