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Why create a buy-sell agreement?

On Behalf of | Jan 24, 2020 | Business Law

Many people in New York have great ideas to launch a new business or a tech startup. When planning a business venture, it is important to make sure that the founders have all the documentation they need to run their company effectively. This can include registering the company with the right type of corporate structure and complying with all necessary formalities for business formation. In addition, when multiple people are part of a new business, it can be important to develop agreements about what to do when one of the partners wants to leave.

Buyout agreements or buy-sell agreements are a typical option for many S corporations, limited liability companies, partnerships and other businesses that can place conditions on how each partner can sell off their shares. This kind of agreement is reached between all the company shareholders, typically the founders of a smaller company. It can determine whether a company has to buy out a shareholder if he or she wants to leave as well as the company’s rights if, for example, a shareholder dies while owning a part of the company. This type of agreement is intended to protect the business as a whole from individual decisions or unfortunate events that could affect its future.

A buy-sell agreement should contain restrictions on who can buy company stock, what the company’s options are, how the equity stake is valued and how payment can be made. It can help to prevent companies from acquiring unwanted or damaging partial owners, and some angel investors may want to see one on record before agreeing to fund a startup.

Conflicts between business founders can lead to serious problems for small businesses. A business law attorney may provide guidance and advice on the business formation process, including the development of contracts and agreements to protect the company.