A comprehensive business succession plan should address both the management and ownership of the business. One common feature of a succession plan is a Buy/Sell agreement which is an arrangement between owners of a business by which the surviving owners agree to purchase the interest of a withdrawing or deceased owner. Most business succession plans should also include redemption agreement which is an arrangement between owners of a business and the entity itself by which the one owner agrees to purchase the interest of a withdrawing or deceased owner. A hybrid agreement will contain elements of both a Buy/Sell Agreement and a redemption agreement. The phrase Buy/Sell Agreement is used generically in reference to both these agreements.
There are a multitude of purposes and uses for Buy/Sell Agreements, including:
(i) imposing restrictions on the transfer of individual interests in a business entity to:
(A) maintain a balance of control
(B) prevent participation by third parties who may not be acceptable to incumbent owners
(ii) to serve as an estate planning tool
(iii) to hedge against internal discord amongst the owners which might otherwise cause irreparable damage to the business or its operations
Of course, countless additional purposes and uses may be identified, but the above constitute the bulk of the reasons for a Buy/Sell Agreement.
Call 574.232.3538 to speak to an attorney about how Buy/Sell Agreements can affect corporate operation and management, protect corporate assets and add confidentiality and non-competition for your business.