In New York and across the US, individuals who co-own a business with other business partners need to have a buyout agreement or buy-sell agreement in place when creating a partnership agreement. The buyout agreement is a legal contract that determines how the future sale of an owner’s interest in the company will be handled.
A buyout agreement usually states when an owner can sell his or her business interest, who can buy that business interest, and how the business interest is valued. The agreement may also state whether a business partner who is leaving the business needs to be bought out or what actions cause a buyout.
The valuation of an owner’s business interest is often a contested area of the buyout process in business law. This value can be determined by an accounting professional that will look at the company’s finances to assess fair market value. Fair market value should consider unpaid salary, dividends, and shareholder loans. It is best for an owner to sell his or her business interest when the company is in the best financial shape possible.
There are a number of reasons a business partner may want to leave a business, and these are not always related to disagreements with other business partners. Some of these reasons include taking another job, personal bankruptcy, divorce, or other family issues. If there is no buyout agreement in place when a business is started, a partner leaving the business could cause the dissolution of the entire partnership.
When partners are setting up a business, it is important to have the right business law professional to help set up a buyout agreement properly. Having the right legal counsel for your business is an important part of ensuring future business success for many years to come.