What is the importance of a buy sell agreement for an LLC or small business? You only have a few partners and you’re trying to get things going. Why should you spend the time to get this important corporate document done right up front, when you form a new business or LLC? Perhaps you’ve already been in business for a few years and are tasting success. Your buy sell agreement will make a significant impact on the life of your San Diego small business and pre vent disputes between owners before they ever arise.
Pro Tip: The majority of disputes involving small businesses such as LLCs and their ownership are over money. After more than 40 years of experience I can tell you those who take the time to review and implement a custom-tailored operating agreement and buy sell agreement will prevent a lot of expensive internal disputes down the road. – Dan Watkins
We are continually reminded of the extensive price that San Diego business owners pay for trying to keep costs down by doing a lot of the business forms such as the buy/sell agreement and operating agreement themselves (via form and download sites) in the startup phase of a business. Cutting corners in crucial business contracts will always result in expensive business disputes down the road.
The buy/sell agreement is a critical business document. It establishes how the company will handle the normal bumps and unexpected developments in the lives of its ownership. Issues such as divorce, bankruptcy, unexpected illness, disability or even a loss of life can and will happen down the road. I can tell you, in my experience those types of issues are likely to present challenges earlier instead of later.
This is the importance of a buy sell agreement for an LLC or small business in San Diego or anywhere in California. What happens when one of the principals in the company isn’t pulling their weight or holding up their end? What happens if one of the owners of the company goes through a divorce and their spouse gets half of their ownership interest? How do you prevent the former spouse of one of your business partners from owning a large portion of your company (and having to deal with them down the road as a result)?
What happens if we need to bring in another investor, or partner? What happens when one of the owners dies – and how do the surviving owners and the company itself maintain control over that ownership interest and associated control while providing appropriately for the deceased owner’s family and beneficiaries?
What happens if one of the partners or members needs or chooses to sell their interest in the business? Who has the first right to acquire that interest? How will a sale of that interest affect voting rights and control of the company itself? Would it be prudent to place some controls within the operating agreement or buy/sell agreement to protect the balance of voting rights and control of the company or to prevent a hostile takeover?
The importance of a buy sell agreement for an LLC or small business lies directly with the well being of its ownership and ensuring the company can survive the unexpected turns its owners will face in the future.
Your buy sell agreement will make a significant impact on the life of your San Diego or California small business or partnership. Life happens. Business happens. Most “off the shelf” documents don’t begin to address these real life scenarios, and the cost of fixing it down the road is exponentially more expensive, time consuming and distracting than doing it correctly now.
We invite you to review our podcast Episode 3 – Corporate Documents, Contracts and Raising Capital, as well as the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.
Let’s work together to review your existing documentation and build a plan that will help you to survive any challenge, and thrive.
