Would you want to be in business with your business partner’s spouse?
How about running your Oklahoma business with one or more of your business partner’s children?
If these situations concern you, read below to find out how to avoid them.
The phrase “buy-sell” is popular but often misunderstood. A buy-sell agreement, or shareholder agreement as it is sometimes called, controls how ownership interests in a company are transferred. A buy-sell agreement sets terms on how a business can sell her ownership interest if she leaves a company for any reason and protects the people who remain as owners.
It is particularly important for small Oklahoma companies to have written buy-sell agreements because often there is no independent way to value an ownership interest in the company. With a publicly-traded company or actively traded privately-held company, there are some benchmarks, with a small company there is no standard.
1. You should choose your business partners. You make plans to go into business with one or two other people. You choose these people for many positive reasons. What if one person leaves the company and sells her interest to a stranger who has money? That stranger could become your business partner, for better or for worse.
2. The time when someone leaves a company is not the time to be hashing out value. Partings are rarely pleasant. This holds true when one of a handful of business owners leaves the business. Emotions may be running high and logic may be throttled. Trying to determine a buy out strategy and value at this point is thorny and fraught with difficulty. Don’t do it; set the strategy and mechanism for calculating the value while everything is peachy.
3. It protects your family. Death and disability are often reasons for needing to transfer a business interest. The departing owner is often not capable of operating or negotiating at this point (obviously not capable in the case of a death). The owner’s family both needs and deserves to be paid value for her interest. If there is not a buy-sell agreement in place, my experience has been that the surviving owners are not overly eager to pay out compensation. It’s not right, but far too often its reality. You can prevent this by having a buy-sell agreement in place that dictates how a business compensates the family in case of death.
Take advantage of the opportunity of good health and good relations to put a buy-sell agreement in place; this benefits all the owners.
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