If you own a small, family-owned business in Texas, you need to be sure to have plans in place for what might happen if an owner or partner in the business leaves the business for any reason, including death.
That is where buy-sell agreements can be of enormous benefit to family-owned businesses. Here’s more about how buy-sell agreements work and some important details to keep in mind as you begin to formulate your small business’s buy-sell agreement.
What are Buy-Sell Agreements?
Buy-sell agreements are contracts that determine how a business owner or partner’s share of their business will be handled if they make the decision to leave the business or die. These are also often commonly referred to as business wills prenups.
Family-owned businesses will want to be sure to have strong buy-sell agreements in place in order to ensure the business is able to transition in such a way smoothly. In the vast majority of buy-sell agreements, the partner who dies or leaves the business will have their shares sold to the other remaining business partners. These are most commonly referred to as cross-purchase agreements. But there are also redemption agreements. Here, the business entity purchases the partner’s shares. There are even buy-sell agreements that are crafted using a combination of these stipulations.
One of the great things about buy-sell agreements is your ability to customize your plans. This might include other provisions such as naming specific family members as successors or share buyers, or purchasing life insurance policies to cover potential business interest costs. Your attorney can work with you and your family to ensure that the necessary details are worked through and included as part of your small business’s buy-sell agreement.
Things to Consider in Your Texas Small Business Buy-Sell Agreement
As you and your family begin to work through the details of your buy-sell agreement, there are several details you will want to keep in mind. The first is that you need to be thorough, as the goal of your buy-sell agreement is to avoid difficult situations in the future that could put your family’s personal interests and the business at risk.
For instance, many buy-sell agreements include requirements that all business partners give their permission before shares can be sold to a potential investor. This protects family members who may be hesitant about letting outsiders have a stake in the family business.
Finally, you may also want to include your family’s preferred means of assessing the value of your business shares. This may come into dispute when there are concerns regarding how much your business is worth or how much your interest is currently valued at. Having a chosen valuation method in place as part of your buy-sell agreement can aid in avoiding some of the more common types of disputes that arise when a business partner leaves or dies.
If you want to take steps to protect your family-owned small business, you should make sure you have a strong buy-sell agreement in place. Fill out our convenient contact form or call our office at (713) 455-6661 for answers to your questions. We look forward to speaking with you!
Albright & Lumpkin, PC
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