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Sanford Law Firm Estate Planning and Elder Law Blog

Tuesday, June 4, 2013

Why Business Owners Should Review Their Buy-Sell Agreements

Buy-sell agreements are important part of succession/estate planning because they provide the framework to transfer ownership from one owner to the next, often from one generation to the next.  
There are many reasons to review the buy-sell agreement particularly if it is more than a few years old.  First, since the initial drafting of the agreement the value of the company may have changed or the agreement may not adequately describe a process for appraising the value correctly.
Second, depending on the laws of a particular state, the agreement may not adequately deal with the possibility of divorce by ignoring the spouse’s potential interest or claim on the company.  In addition to divorce, an agreement that focuses on just on death of an owner and doesn’t cover all other contingencies such as disability and dissolution may end up causing more problems and as a result not effectively transfer ownership of the company.
Finally, one of the most common mistakes is not properly funding the agreement.  An agreement may call for a large lump sum purchase to buy out a partner or surviving spouse.  How are the remaining owners going to pay it?  If the agreement is funded by a life insurance policy is it enough to cover a potential increase in the valuation of the company?  
If the agreement is more than a few years old it should be revisited so the client can be sure that it will serve its purpose when called upon.
 


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Based in Charlotte, NC the attorneys at Sanford Law Firm, PA assist clients throughout North Carolina including Charlotte, Monroe, Cornelius, Gastonia, Mecklenburg County, Cabarrus County, Lincoln County, Iredell County, Catawba County, Gaston County, Rowan County, Union County, Pineville, NC and Matthews, NC.



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