In most partnership firms, the departure of a partner from a business is often overlooked. An experienced business dispute lawyer Virginia Beach will tell you the importance of considering the scenarios when partners withdraw from the business. If this crucial problem is not addressed initially, it might lead to conflicts and perhaps expensive lawsuits afterward.
For various reasons, business partners decide to quit businesses: they may not commit to the company, may not be as successful, discover a new company, or choose to retire. Partners should decide what will occur when one of them exits the partnership when deciding to come together and form a company.
Many new partners fail to create a purchase or sell contract and understand why it is essential to protect your partnership investment. When you make buyout provisions for your partnership agreement, you will be prepared with your partners if you wish to quit the firm or one of the partners dies, declare bankruptcy, or get divorced.
Understanding the Buyout, or Buy-Sell, Agreement?
Unlike common perception, a buy-sell contract does not include the purchase and sale of enterprises. The future ownership of the company is a legal agreement concerning business partners. Most partnership dispute lawyer Virginia Beach prefers to use the word buyout agreement for buy-sell.
A purchase agreement may stand alone or maybe several provisions in the transcribed partnership contract that control the following company decisions:
- If a partner that leaves must be purchased
- At what price a partner’s share interest in a company may be paid,
- who can acquire the share of the departing partner’s partner in a company (including outside parties or other partners)
What does the Buyout Agreement Cover?
In general, circumstances that trigger a purchase from the interest of a partner under a purchase agreement are:
- Withdrawal of a partner
- An offer from an outsider for the acquisition of a stake in a firm
- Divorce settlement where the former spouse of a partner is entitled to obtain a firm partnership stake
- Debt foreclosure guaranteed by a partnership
- Personal insolvency of a partner
- A partner’s incapacity, death, or disability.
The Importance of a Buyout Agreement
If the circumstances of your partner are changing, your buy-sell agreement will inform how business partners decided to sell or purchase an ownership stake. Suppose a partner departs to relocate to another location or starts a company. In that case, your partnership may get dissolved, and you could have to share any assets and earnings between the business partners and choose whether to establish a new firm.
You still could argue whether you should purchase the ownership stake of the leaving partner and how much, even if your partnership does not dissolve. You risk significant personal and commercial differences – even legal fights and the destruction of your enterprise if you do not foresee and plan scenarios such as these.
A purchase agreement might also check who can purchase from the partnership. If you don’t, you may stay shared with a person you don’t like doing business with.