There are numerous details to address when starting a new business partnership. Each partner may need to explain what they intend to provide for the company and what compensation they hope to receive and exchange. They may also need to discuss profit-sharing and long-term plans for the organization.
Including all the right details in a partnership agreement and a business plan can set people up for success. Partners also generally need to address the possibility of the partnership failing. A buy-sell agreement drafted at the time of the partnership’s creation can protect an organization and the people investing in it.
What is the function of a buy-sell agreement?
A buy-sell agreement is essentially a contract outlining what should happen in the event of a partnership buyout. The buy-sell agreement may outline specific scenarios in which one partner can acquire the ownership interest of the other. The agreement also likely needs to contain details about how to calculate the value of the business and compensate the partner selling their interest.
Buy-sell agreements help prevent a messy buyout scenario that requires months of negotiations or litigation to resolve. If partners set terms in advance, the buyout process becomes much less contentious and convoluted.
Those working to develop a new business partnership may need help as they craft custom documents and form a workable business plan. Adding a buy-sell agreement to other business formation documents can be a smart choice, even if partners currently enjoy a positive dynamic. A lawyer can help an aspiring business partner take the necessary steps to protect themselves, their assets and their professional reputation.