Buyout Agreement Guidance in the Conejo Valley
When co-owners of a business enter a buy and sell agreement, also called a buyout agreement, they agree on how one owner's share of the company will be handled when they pass away, become incapacitated, or retire. These agreements are typically utilized by smaller, family-owned businesses, particularly limited liability companies (LLCs), corporations, and partnerships.
A poorly drafted buy and sell agreement – or the lack of one entirely – can imperil an otherwise healthy business when an owner unexpectedly dies or leaves the company. A seasoned legal professional can help businessowners anticipate and proactively prevent these and other succession issues.
At the Law Offices of Kent W. Keating, we are committed to helping California businessowners take practical steps to prepare for the future. Our Thousand Oaks buy and sell agreement lawyer has over 35 years of experience and will work closely with you and your business's co-owners. We strive to build personal relationships with our clients and are here for you as your business's needs evolve. After assessing the goals of you and your co-owners, we will develop a buyout agreement that satisfies and protects everyone's interests.
How Buy and Sell Agreements Work in California
The goal of a buy and sell agreement is often to preserve a business's stability. Consider the reality of a company without a clear succession plan: If a founder or key co-owner suddenly passed away or retired, who purchase their stake in the business? Who would assume operational control? What prevents infighting or a power struggle from dooming the business? Many companies do not survive the chaos that can erupt after a sudden departure, underlining the importance of a well-drafted buyout agreement.
The buy and sell agreement should require that the departing owner's shares in the company be sold upon their exit. In a cross-purchase agreement, these shares will be sold to other co-owners. In a redemption agreement, the company itself buys the shares. Some buyout agreements will blend both options and stipulate who will buy the shares. When an owner passes away, their estate will be responsible for handling the transaction(s).
You may be wondering how a buy and sell agreement is funded. After all, there is seemingly no guarantee that co-owners will have the funds needed to purchase the shares of the departing owner at the time of their exit.
In many cases, co-owners will purchase life insurance policies on other co-owners. This protects the co-owners and the business, as they can use the consequent benefits to facilitate the purchase of the deceased owner's shares when they pass away. This approach requires substantial coordination between co-owners and is an important part of estate planning if you are a businessowner.
Our Thousand Oaks buy and sell agreement attorney can help you explore a life insurance policy-based approach as well as other funding methods. Our team at the Law Offices of Kent W. Keating understands how to draft these complex agreements and will work to ensure your contract reflects your objectives. No matter the scope of your business, our goal is to provide you and your partners with peace of mind and a practical plan.