Buy-sell agreements are documents that can outline what should happen with a business in the event certain situations arise.
While there are a number of different reasons that business owners should develop buy-sell agreements, once they have these agreements in place, it will also be important to regularly review and update them to ensure that:
Below, we’ll reveal some of the most important times to review and consider updating these agreements.
Review Buy-Sell Agreements When…
1 – The value of the business has changed.
As businesses downsize or grow, their value will naturally change. Given that buy-sell agreements can specify the value of the business and that they may not have provisions regarding how to handle a changed value of that business, updating these agreements when the value of the business has substantially changed is important.
One reason for this is that, when businesses are overvalued, partners may end up paying way too much to a terminating partner, as his or her share will have been calculated based on the inflated business value that is no longer accurate.
2 – Owners’ spouses are not addressed in the agreement.
Marriage and divorce are two other reasons to review and update buy-sell agreements. In fact, with these agreements, it will be crucial for business owners to provide provisions regarding how a new marriage – or a divorce – will impact the business.
The goal here is to prevent these changes in owners’ romantic relationships from altering control over the entity (as divorce, for instance, can give a spouse claim to part of a business if a buy-sell agreement doesn’t specifically preclude this possibility).
3 – The agreement doesn’t address certain other key issues.
There are a number of other life events that should be covered in buy-sell agreements if business owners are really serious about maximizing the protections provided by these tools.
In fact, you will likely want to review and update your business’ buy-sell agreement if it doesn’t have provisions regarding the following:
- The death of an owner
- The impairment or disability of an owner
- How an owner can depart from the business
- What occurs in the event that the business is dissolved.
Denver Business Lawyer at Downey & Associates, PC
If you need help developing or updating a buy-sell agreement for your business – or you need assistance with any business legal matter, you can count on Denver Business Lawyer Thomas E. Downey. Since 1983, Thomas Downey and the other legal professionals at Downey & Associates, PC, have been providing individuals and businesses in the Denver Metro Area and throughout the U.S. with the highest level of legal service for their litigation, property tax and real estate legal issues.
To discuss your business legal needs and find out more about how we can help you, contact our firm today by calling us at (303) 813-1111 or by emailing us using the contact form on this page.
From our law offices in Centennial, we serve clients throughout Colorado and the U.S.
