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Why is a Buy-Sell Agreement Important?

Why is a Buy-Sell Agreement Important?

| September 03, 2019

Launching a new business is an exciting prospect, and it is easy to skip over crucial steps in the eagerness to get operations underway and to start making money. However, this eagerness can result in many new business owners skipping over essential steps that can cause grief and financial risk later on. One of the important items to be dealt with is a clear stipulation on how future personal changes will affect the management and control of the business. Examples include such possibilities as the death or disability of a partner, a divorce filing on the part of the primary business owner, the bankruptcy of one or more of the partners, and many others. A well-designed buy-sell agreement will address these and other vital questions before a crisis hits.  Here at Innovative Financial Group -Atlanta, we want to be your resource for all of these services and more.

Without a binding buy-sell agreement in place, the business can be at risk. Lack of a clear succession plan can lead to disputes between partners or their spouses that waste time, money, and resources. Any business that involves two or more people should have a well-developed buy-sell agreement in place from the outset. Fortunately, putting together an effective buy-sell agreement is not difficult, and it should be done even if your partner is a spouse or best friend. It is important to note that nothing in this document should be taken as legal or tax advice. Consult a qualified legal or tax professional to answer any specific questions about your situation.

What is a buy-sell agreement?

A buy-sell agreement is a legally binding document that clearly stipulates how significant events such as death or divorce will affect the management and control of the business. A well-written contract will anticipate the needs of the owners and will address any potential conflicts that may arise between them as well as how they can dispose of their shares in the event of bankruptcy or other significant changes. In addition, the buy-sell agreement should specify when other owners have the opportunity to buy their partner’s interest in the business prior to its disposition to an outside party. An effective buy-sell agreement will also provide a guide for determining the value of an owner’s interest. It will also state whom the remaining owners are willing to accept as a substitute owner.

Why have a buy-sell agreement?

A buy-sell agreement creates a market for the departing owner’s interest. For a small company, there may be no market for the ownership shares outside of such an arrangement. It also provides for continuity of business operations by preventing a break, in control of the business. The buy-sell agreement helps the other owners and non-owner employees to maintain a stable job and ensures that the survivor of a deceased owner will receive compensation for their stake in the company. The buy-sell agreement also allows the surviving owners to purchase a deceased owner’s share of the business promptly and avoids having the company tied up in probate or an estate representative becoming a voting owner of the company. The agreement will also set an accepted value for the purchase of each owner’s interest, thus reducing the risk of litigation, and finally, will determine each owner’s percentage stake in the business.


There are many different types of agreements, and the exact parameters will depend on factors unique to each company and ownership group. The advantages and disadvantages of each type will need to be discussed with qualified professionals who can help guide you through the process. Life, in general, is full of risks and uncertainties anything you can do as a business owner to help reduce those uncertainties can help minimize risks to the business. A buy-sell agreement is a key document that any business involving two or more owners should have in place. It will provide continuity and stability in the event things get rocky. Don’t allow a lack of foresight to sink your business! Call on Innovative Financial Group – Atlanta to learn more.