Most people have heard of premarital agreements (also known as prenuptial agreements), but you may not have heard of Buy/Sell agreements.
If you are a part owner of a multi-owner business (or are married to one), you will want to acquaint yourself with Buy/Sell agreements because they are a bit like the business equivalent of a premarital agreement: they spell out what happens to the married partner’s ownership interest in the event of a divorce. Like a premarital agreement, it is typically signed long before divorce is being considered.
A Buy/Sell agreement is a contract, signed by all the owners of a multi-owner business, intended to prevent a former spouse — whether by death or divorce, or current spouse of a business owner who becomes disabled — from participating in the operations and/or ownership of the business. Usually the Buy/Sell agreement includes a right of first refusal for the business to buy the owner’s ownership interest in the business and a formula for calculation of the value of that ownership interest or a method of calculating the ownership interest.
Read my latest post to learn about how this contract can protect your business.