‘Til death do us part….or until I don’t want to work with you anymore…the importance of Buy-Sells.

Tags : covid-19
February 28, 2022

I got a call earlier this week from a prospective client looking to start a business with a friend.  They had a great idea and wanted to work together.  After talking about the business and what may be appropriate structures, I asked them the following questions:

  1. What happens if one of you dies?
  2. What happens if one of you becomes incapacitated?
  3. Who makes the decision if you both disagree?
  4. What happens if one of you gets a divorce?
  5. What happens if one of you hates the business?

As I asked these questions, the answer was the same:  we are friends and neither of us would do anything to harm the other.  Almost universally, across the board, whenever I hear that, I am positive that it won’t play out that way.  It’s kind of like, well it is exactly like a marriage that ends in divorce.  No one ever gets married thinking that they will eventually get divorced (unless you have an ungodly amount of money and you want to protect it with a prenup).

So, how do you address these matters if you have partners or other shareholders in your business?  Well, a buy-sell agreement can certainly help.  It will deal with situations like buy-outs, deaths, incapacitations, divorces, and so on.  Below are some good articles detailing these critical, but often ignored documents:

Buy-Sell Agreement: What Is It and Do You Need One for Your Business? – NerdWallet
Considerations for Using Buy-Sell Agreements – The CPA Journal
What is a Buy-Sell Agreement and Why Your Small Business Needs One | SCORE
Funded buy-sell agreements bring powerful benefits | Accounting Today

Here are a few other things that may be of interest:

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