Buy/Sell Agreements

Numerous closely held businesses and firms have more than one owner or partner. A sudden, unplanned departure of a co-owner can have a major impact on the future success of the business. As a result, many private companies with two or more owners enter into buy/sell agreements. A properly drafted buy/sell agreement provides a roadmap for the transfer of business interests in certain voluntary and involuntary circumstances such as retirement, disability, or death of one of the co-owners (i.e., triggering events). A buy/sell agreement can also help establish the value that one co-owner would pay another to purchase the other owner’s share in the company. Buy/sell agreements can also outline the funding and payment terms of the buyout upon certain triggering events. Typical funding mechanisms include life insurance and/or promissory notes. Valuation professionals are often involved in valuing closely held business interests pursuant to a buy/sell agreement. In addition, they may be involved in consulting engagements related to helping the attorneys draft certain provisions of these agreements. Buy/sell agreements tend to vary by type and complexity, and the parties involved should consider several factors from a valuation perspective when establishing these buy/sell agreements. Poorly drafted buy/sell agreements with ambiguous provisions can obstruct the buyout transaction and create significant costs and delays for the parties involved. Often times, the use of static formulas for this purpose in lieu of either outlining structured negotiations or seeking out third-party valuations can cause drawn-out and costly partner disputes. Business owners and their attorneys frequently rely on VSI to help in the planning stages of drafting their buy/sell agreement as well to assist with the business valuation process when a triggering event occurs pursuant to such agreement.


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Arlington, VA 22201


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