This article are provided for information purposes only, and are not intended as legal advice.


Buy sell agreements – are they needed?

February 24th, 2009

Do you have a partner who you no longer get along with?  Are you starting to have different interests and you feel that our partner is not putting the same effort as you into the business?  Can you get out?  When you are starting a business, many people have come to me and said we are best friends, we will never have a fight therefore we do not need a buy sell agreement.

 

Buy sell agreements are not there when you get along with each other, they are there for when things fall apart and you can no longer see eye to eye with your partner.  No matter how the small business, do not procrastinate, make sure you have a buy sell agreement even if it is a simple agreement. 

I know of a situation where 4 friends built a few apartment buildings in the 1960’s when they were getting along with each other.  They had no buy sell agreement.  Two of the partners sold a portion of their share to family and friends and now the other two owners had no idea who were their partners.  One partner was the property manager from day one.  Another partner was not happy but there was no agreement to remove the one partner as property manager.  As long as one partner kept the other 2 onside, he would never be removed as property manager.  There were questions regarding the operations of the properties that one of the partners disagreed with but had no say because of no management agreement nor buy sell agreements existed.  The owners got old, some became very ill, some passed away and the problem was left to the next generation.

 

The second generation did not get along and there was no buy sell agreement.  Eventually the second generation finally agreed to have a buy sell arrangement 30 years after the business was set up.  The buy sell agreement was just between two of the partners and not all four.  Eventually the buy sell agreement was triggered and one partner was bought out but there is still a stalemate, two groups own each own 50% of the business.  No buy sell agreement therefore the company is still in a stalemate.  Since one of the 50% side has multiple shareholders and some of those partners are not getting along, the likelihood of a buy sell agreement between the two groups gets more remote over time.  If some of those parties dies, then there will be many issues if one side has 5, 10  or even 25 heirs.  It was impossible to get a buy sell agreement with 4 partners who originally got along, however it is not easy and maybe impossible to get a buy sell agreement with 25 partners, depending on how many heirs there are to the business. 

 

A buy sell agreement would have prevented one of the parties from selling to strangers and would have contained the number of shareholders.  There would have been an exist strategy for the other partners and their heirs.  Remember, if you buy a business or start a business and you have a partner, make sure you have an agreement on who is running the business and if one partner wants to get out of the business or one partner no longer wants to continue to work in partnership with you.


Filed under: Buy sell agreements — Gary Landa @ 9:19 am


1 Comment »


  1. Hi,
    I like the above discussion very much.All these, above discussed helps a lot in immersing new thoughts and ideas,I am highly satisfied and oblige for this.

    kim

    Home Based Business

    Comment by kim1987 — February 26, 2009 @ 4:39 am


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