A buy-sell agreement is a legally binding document that determines how a partner or shareholder in a closely held business may purchase the interest of another partner or shareholder who withdraws from the business. Integrating a business valuation into a buy-sell agreement is often critical to ensuring that all shareholders are treated fairly and equitably if one executes the agreement. Likewise, the absence of a buy-sell often triggers a valuation during partnership disputes.
Buy-Sell Valuation Scenarios
Some of the most common scenarios include:
- The Buy-Sell Agreement Requires a Valuation. Many agreement documents call for an independent, third-party valuation. (Think it might save some money to just include a pre-defined formula and skip the valuation? This might scare you straight.)
- No Buy-Sell Agreement. Often times we wind up working to establish value when one shareholder wants out of a partnership. Those situations can be either friendly or litigious.