September 2000

When a business has more than one owner, it’s important to have a written agreement (sometimes referred to as a buy/sell agreement) that specifies what happens when an owner withdraws from the business for such reasons as retirement, disability, death, or family discord. One of the purposes of such an agreement is to restrict the ability of the owners to transfer their ownership interests. This can be especially critical with a family business where the intent is to pass ownership interests on to the next generation. The entrance of non-family members as owners would generally be unwelcome, but without a buy/sell agreement there may be nothing to prevent that from happening.

Even when the current owners are not related, buy/sell agreements are still important. For example, rarely do co-owners "get along" indefinitely. This is often a problem when some of the owners are active in the business and others are not. Disputes and disagreements almost inevitably arise. Thus, it is desirable to provide a way for owners to depart without forcing the remaining owners into a potentially uncomfortable business relationship with new co-owners who may be unfamiliar with the business or may even be competitors.

The best time to draw up a buy/sell agreement is now, before problems develop. This also provides an incentive to all parties involved to set a fair price (or a formula or method for determining a fair price) in the agreement because no one knows who the agreement will apply to.

If you do not have a buy/sell agreement for your business, I would be happy to assist you and your attorney in developing one that’s appropriate for your situation. If you already have an agreement in place, I suggest we go over it together to ensure that it’s current and includes all of the appropriate provisions needed to meet your wishes. Please give me a call at your convenience so we can discuss this further.

Best regards,

Larry Harrison