The buy sell agreement is a crucial business document in any San Diego or California LLC, corporation, medical practice or business entity.  The buy-sell agreement is often referred to as a “buyout agreement,” and establishes the process for how a business ownership position will be managed in the event of certain events or “triggers” in the life of a business owner or investor.

Key Takeaways regarding the Buy-Sell Agreement:

1. The buy sell agreement is designed to ensure business continuity and advance agreement on what will happen if a business owner or stakeholder faces a major life challenge.
2. “Triggers” include, but are not limited to, divorce, bankruptcy, disability or serious illness, death of an owner or stakeholder, or a dispute between ownership interests.
3. The buy-sell contract establishes the process for how an ownership interest is to be valued, funded and ultimately executed

A Buy Sell Agreement is an Important Document in any Genuine Company or Corporation with More Than One Owner

Many new business owners and entrepreneurs have yet to learn of the importance of the “buy/sell agreement” within their new San Diego or California LLC or corporation.  Even investors, members and shareholders who have owned their interest for some time may not fully understand this important document, if the document exists within their company’s structure at all.

The buy/sell agreement is a crucial business document.  It isn’t just about the purchase and sale of your business, per se.   It is designed to anticipate the changing needs of ownership, members and shareholders and how the parties will navigate through the changes in their business and personal lives over the coming months and years.  What happens if a dispute erupts between members in an LLC, shareholders or investors in a corporation? What happens when one of the principals gets a divorce, or becomes incapacitated for a period of time.  What happens in the event of a bankruptcy of one of the company stakeholders?  What happens to an owner’s position in the event of a serious illness or their passing?  How will the company survive these types of “triggers”?

The buy/sell agreement comes out of conversations with the owners, usually when a company is being formed, but it can be created or modified at any point during the life of a company.  Our clients enjoy the deep experience we bring to the table after more than four decades of service, advising and helping tens of thousands of local and California business people through similar conversations.  We’ve seen just about every potential wrinkle that can come up in the life of a business owner, and how it will affect your LLC, medical practice, or corporation.  We can also help you to develop the plans, in advance, that will guide you through these storms while allowing the business to continue to operate and thrive.

Pro-Tip: ” One shouldn’t say “warts,” but every business has a certain way they got used to doing business that might not be a hundred percent correct. Coming to a lawyer, we help a lot of companies to solve those problems. We carve out the problem. We negotiate the issue. We disclose it and we solve it. That’s what our transaction attorneys do. They don’t argue about it. They just say, ‘oh, this is an issue. Here’s a solution.’ So we all agree. And we move on.

So it’s sort of like issue spotting. Here are the issues my client found with your business. How do we want to resolve it? And so we propose something for all five issues. If they agree to it, we have a deal. If not, they counter and say, this is what we’ll do in part to solve the problem. And half the time, these issues, we spot are not big enough to stop our buyer, our client from buying, they’ll say, well, you know what? I’ll take the risk to I’ll go ahead and buy it. At least I know about it, right? So it’s not like litigation where you’re just, I’m right. You’re wrong. It’s more like, Hey, these are the issues. You know, the car has a few dents in it, but it’s still got a good engine. Do you want to buy it? And you say, yeah, I’ll, I’ll buy it maybe for a little less money.

This is especially true when you have a poor buy-sell agreement, or when there isn’t one in place at the present time.  It’s a crucial business document that ensures the business can survive anything that happens in the life of its owners.

So, bottom line, owning, buying, investing in, and selling emerging a business, there is no perfect business. And a lot of times we’ll have long term clients of ours hesitant to sell the business. Even though they want to retire, they want to move on because they know that their business isn’t quite perfect. There may be some things they did that they think another owner or buyer wouldn’t like, or, or maybe they’re just shy. We solve those problems. We sell over a hundred million dollars in businesses every year. And every single one of them has some issues, have some carve outs, have some problems. And as buyers council, we help address those.

We also help existing owners to evaluate and strengthen the internal buy-sell agreement.  And we put in clauses for those and agreements. And as seller’s council, we tell the client what to expect. And when the buyer says something about it, we suggest clauses and resolutions. And luckily in the transaction world, we’re able to solve things a lot faster and a lot easier than in the litigation world. So as an an investor, a buyer or a seller, make sure you have the mindset that those people looking around want to buy, or they want to sell, but they’re ready, willing, and able buyers and sellers. So they have a more motivated, more positive attitude when it comes to closing your deal.” – Dan Watkins, Founding Partner

Now that you understand the buy sell agreement is a crucial business document, how do things look inside your own company?  Has this document been reviewed and updated recently?  If you’re looking to invest, we can help to review existing corporate documents and reports including the buy sell agreement to make sure they are in order.

We invite you to review our podcast Episode 9 – Buying or Selling a Business or its Assets, as well as the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.