Too many companies find themselves in uncharted territory at the death or disability of an owner or shareholder.
If you have 2 or more owners you probably have one of these:
- Buy / Sell Agreement
- Shareholder Agreement
- Operating Agreement
Neglecting to review these agreements every 3 – 5 years can put everyone in a compromised position.
If you have a company with at least 2 owners and you have not documented your expectations or understandings about departing equity holders, you should immediately begin that dialogue. Whether due to resignation, death, disability or even wrong doing, you must spell out your rights and terms for a settlement. You start by reviewing all parties’ wishes on handling what may come because doing nothing and waiting for the unfortunate to happen may leave you few options. Do you know how you want things to be settled?
Well you still score high for have done something. But even when things are good, your buy/sell agreement needs review, valuations and circumstances continually change. In today’s economic environment the changes may be more dramatic than in less volatile times. These are a few of the reasons you may need to refresh your agreement. How long has it been since you last updated your agreement?
An Unfunded Agreement
We find many buy/sell agreements are set to cover surviving owners’ main obligations in the event of one partners death and (or possibly disabled). The concern is that many companies have simply not run the numbers and realize late that the business and remaining owners have insufficient means to meet the payment required. The good news is that you are reading this now and should be able to rectify this concern by discussing deferred payment strategies and or proper amounts of insurance are in place. Is your math up to date, have you updated your insurance?
An Incomplete Agreement
How old is your buy/sell agreement? “Current” buy/sell agreements usually cover issues on intellectual property rights and e-assets. Alternative dispute resolution, non-competition and confidentiality are usually covered as well as many other important elements. Reviewing buy/sell agreements at planned regular intervals will diminish a gap between old concerns and emerging concerns your business and owners may need to address. Having a complete, funded up to date agreement is essential for business continuity. Let us know if we can be of assistance in your review process!