The contract to sell your business can be one of the most important legal documents of your life. It may not seem or feel most of the time, but if and if you need this deal, it can either save you huge sums of money and incalculable stress and suffering, or it can cause you to lose huge sums of money and suffer from incalculable stress. The result depends on whether your purchase-sale contract is well designed or not. And unfortunately, many buyback agreements make one or more surprisingly frequent mistakes. The value of your business will change over time, so it`s important that this is reflected in the buy-sell agreement. It is customary for an agreement to evaluate the entity at the time of the event. If this is the case, it may also be interesting to outline in the agreement how the value is calculated at that time – book value, agreed value or independent valuation, for example. This will help avoid any dispute over the value of the business. The purchase-sale contract should describe how the outgoing owner`s shares will be transferred. There are usually two different ways to do this — a cross-sell purchase or a buyout.
A cross-sell purchase means that the other owners of the business buy the proportional owner of the business, which increases their participation in the business. A buyout means that the company buys back the company`s outgoing stake or pays the value of the shares and cancels them. Life insurance is a common way for many companies to plan the execution of the sales contract. For example, for many co-owners, the market value of the business would be estimated. Each partner would then be insured by the other owners or the company for its share of the total value of the business. In the event of the death or incapacity of an owner to work, the proceeds of life insurance would be used by the other partners for the acquisition of the shareholder`s shares, the valuation price being intended for the family of the deceased owner. If you are considering buying or selling a business, contact CCASA to ensure that you are protecting your assets and remaining compliant. The purchase and sale agreement assumes that the shares are sold according to a specific formula to the company or other members of the company. Buy-sell agreements protect your business from future problems by consolidating what happens when an owner wants to sell – or needs to sell his share of the business. This agreement describes who can buy an owner`s interest, what the price will be and what will happen to an owner`s party if he dies, is disabled, retires, goes bankrupt or divorces.
You never know what will happen in the future, so it`s a good idea to cover as many events as possible in your sales contract. Death and Total Sustained Disability (TPD) are two of the most common events to cover, but it is also worth extending this issue to critical or long-term illness. If you get sick, your business partners can`t estimate your family to get into the business. Partners should cooperate with a certified lawyer and accountant when entering into a purchase and sale agreement.