Your Corporate Buy-Sell Agreement
Ticking Time Bomb or Reasonable Resolution?
An earlier edition of this article appeared in Chris Mercer's blog, MERCER ON VALUE, which can be found at www. merceronvalue.com. As a subscriber to VALUE MATTERS™, you may also wish to subscribe to MERCER ON VALUE. To do so, please visit www.merceronvalue.com and enter your email address in the "Subscribe" field in the upper right-hand corner of the blog.
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Buy-sell agreements exist in many, if not most, closely held businesses having substantial size and/or value. And they exist between corporate joint venture partners in many thousands of enterprises.
Buy-sell agreements are agreements by and between the shareholders (or equity partners of whatever legal description) of a privately owned business and, perhaps, the business itself. They establish the mechanism for the purchase of stock following the death (or other adverse changes) of one of the owners. In the case of corporate joint ventures, they also establish the value for break-ups or for circumstances calling for one corporate venture partner to buy out the other partner.
Buy-sell agreements (or put agreements in some cases) are more important than most business owners, shareholders and boards of directors realize. I've often said that buy-sell agreements are written under the assumption that the other partner is going to die first - and one of the partners is right!
Seeing two different buy-sell agreements recently put the topic at the top of my mind and triggered a couple of memories, as well.