People going into business with one another typically negotiate contracts. Partnership agreements detail what each partner can provide for the business and what they expect to receive in return. Partners often focus on their goals for the company, their planned contributions and their expectations when the company succeeds.
They may fail to consider what happens if their relationship changes or if one partner suddenly needs to exit the organization. There are many reasons why partners may no longer be able to do business with one another. Integrating a buy-sell agreement into a partnership contract can reduce the likelihood of protracted disputes when the time comes to end the working relationship.
What is a buy-sell agreement?
As the name implies, a buy-sell agreement is effectively a contract outlining the expectations for a buyout scenario. Partners may outline the business valuation process they intend to employ to determine the company’s fair market value.
They may establish baseline expectations regarding the compensation for the partner exiting. The agreement may also include details about any transitional support that the exiting professional has to provide to their successor or the organization.
There might also be restrictive covenants to prevent the exiting partner from going to work for a direct competitor or starting another business in the same industry immediately after leaving. The exact details included in a buy-sell agreement depend on the nature of the business, the investments of each partner and a variety of other unique details.
Having support while negotiating or drafting the terms of a partnership agreement can take much of the risk out of starting a business with another person. Buy-sell agreements allow people to end partnerships amicably and to preserve their company during difficult transitions.