Partnership agreements often focus on investments, daily contributions and profit sharing. However, business partners may also need to negotiate terms that govern the end of a working relationship. There are many scenarios in which one partner may want to acquire the other’s interest in the company. A buy-sell agreement can lead to a low-conflict transfer of ownership.
What specific details should partners include in a buy-sell agreement?
1. Acceptable triggering events
Partners often include limitations on the use of a buy-sell agreement. They may insist that a specific event occur before either partner has the ability to acquire the other’s interest in the company. Outlining when a transaction is possible is important for the maintenance of the working relationship.
2. Valuation methods
There are numerous different ways of determining what a company is worth. An appropriate business valuation is a key element of any successful buy-sell agreement. Agreeing on the specific way that partners may calculate the company’s worth is important for a smooth transition.
3. Limitations on competition
Agreeing that neither partner should directly compete, solicit the company’s workers or disclose private information can protect the business when one partner buys out the other. Restrictive covenants are often important when people have access to operational details. Noncompete, nonsolicitation and nondisclosure agreements are common inclusions in buy-sell agreements, as partners have information and relationships that could harm the business they form together.
Negotiating appropriate partnership agreements is often crucial for the long-term success of a working relationship and the company that partners form. A business law attorney can help create a contract that adequately addresses significant concerns accordingly.