Starting a new business partnership is an exciting opportunity. New partnerships help those with excellent ideas tap into financial support and the assistance of experienced professionals. People who may have studied or worked together might pool their resources to start a business.
In the best-case scenario, new business partners may work together indefinitely. However, many business partnerships end with one partner buying out the other due to a disagreement about the company’s future or other issues with the working relationship. Those about to enter a new business partnership may need to add a buy-sell agreement to their partnership contract and business formation paperwork accordingly.
What is a buy-sell agreement?
A buy-sell agreement is effectively a contract outlining when and how one partner can acquire the other’s interest in a company. Buy-sell agreements can clarify what business valuation method the partners need to employ, what a buyout offer should include or what transition support the exiting partner may offer during the buyout.
They may also include restrictive covenants that help protect the company’s trade secrets and prevent unfair competition after one partner exits the organization. The terms included in a buy-sell agreement can pave the way for a swift and effective buyout with minimal conflict. Working together to set those terms at the beginning of a business partnership can protect a company from disruptive disputes and costly litigation if/when one partner wants to buy out the other in the future.
Those about to start a new business partnership often need to plan for its end to protect what they plan to invest. Seeking strong legal guidance is a great way to get started.
