If you are planning to create a business through partnership, you will need a buy-sell agreement (buyout agreement). To create a buy-sell agreement to protect your business, here are some tips.
- Determine the policies on selling partner shares during partner separation. Is your partner allowed to sell his shares to a third party purchaser? Does he needs to present his shares to other partners before he can sell it to a third party buyer? Also define the conditions on purchasing the shares. Consider these options before writing a buy and sell agreement.
- Describe terms related to "buyout." The terms should be focused on disability, retirement of a shareholder or partner, death or removal from a company. Also include in the buyout agreement the purchase price of the share, schedule of the buyout or turnover of the stock and life circumstances.
- Build some rules for divorce. If the share partner is divorced, will his/her previous spouse share what he gets from the other partners? If you allowe that rule, determine the value of the share. You can determine the price by transforming the monetary value of the partners through a point rating or net worth. By doing this you can measure each value to know the allocation for each partner.
- Consider also in the buy and sell agreement the death of a partner. Include in the rules if the other shareholders can buy the deceased partner's shares from his/her family, or if the family is required to trade or sell the stocks to partners of the deceased share holder.
- Also consider bankruptcy. Set the rules if the partner shareholder filing for bankruptcy is required to inform other partners before the filing, because his shares are considered assets that might be taken into receivership once he files for bankruptcy.
- Set rules regarding a partner wanting to buy out other partners, but does without financial ability to execute it. How much will be the initial payment for the buyout? What are the terms and interest rates of the buyout, and the time he/she will pay for the remaining balance? These must be included in the rules.
- A trustee can authorize a buyout agreement. The trustee will be the negotiator of the buyout agreement. You can also look for third party to determine the ratio of value and stock of the partner. It will prevent individual partners from assigning themselves a value that is self-serving. It will be a validation to execute the terms of a buyout agreement.
This "buyout" agreement will serve both you and your partners' interest by creating rules for business shares selling. The agreement will tell you how to sell a share if something happens like death, removal from the company, divorce and retirement.