Home » Buy-Sell Agreement: Attracting Investors
Business Buy-Sell Agreement & Attracting Investors
A buy-sell agreement can be especially helpful in seeking investors for your business. Many investors will only consider options that include a buy-sell agreement with company management, as this gives them an opportunity to pull investments from an enterprise that does not meet their expectations. Your San Diego business lawyer will ensure investors are protected by the buy-sell agreement, structuring it to allow them to pull their investment if a company is performing poorly, or purchase enough shares to remove the current management, or sell the company to new owners.
In this situation, a buy-sell agreement is beneficial when selling your business, since it will reassure prospective owners they will be able to entice investors to your business. Inform your San Diego business broker of the existence of your buy-sell agreement when attempting to sell your business, for added leverage in attracting bids.
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Buy-Sell Agreements for Family Businesses
Buy-sell agreements are especially important to family businesses, which is also the most common type of business in America. If your business is family owned, talk to your San Diego business attorney about setting up a buy-sell agreement that will help you transfer your business to the next generation. Additional options exist to keep your business within your family, such as irrevocable life insurance trusts, self-canceling installment notes, sales to intentionally defective grantor trusts, grantor retained annuity trusts, stock options, non-qualified deferred compensation plans, and employee stock options. Talk to your San Diego business attorney to choose the best transfer structure for your family business.
Badly Drafted Buy-Sell Agreements
It is essential that you work with a top quality San Diego business attorney when drafting a buy-sell agreement for your company. A badly drafted agreement that fails to meet the essential purposes of this document could result in a malpractice claim or lawsuit, or incomplete contractual provision. Ensure that your San Diego business lawyer has experience and positive references from other clients in crafting flawless buy-sell agreements before proceeding.
Events Triggering Buy-Out
When a buy-out occurs, an outsider purchases a company’s shares in order to gain control of that business. Owning and selling your San Diego business requires you to understand the events that can lead to a buy-out. These events include an attempt to sell. When an owner attempts to sell her interest in the business, the business entity itself has the right of first refusal to purchase this interest under the same terms offered to outsiders. The business entity constitutes the legal name of the business itself, rather than the people who own it acting as individuals. A price at which the business entity can purchase the interest may also be established in the buy-sell agreement. If the entity does not buy the interest, the remaining owners have the second option, and can purchase the interest on a proportional basis. If neither the entity or other owners purchase the interest, the seller may sell to a third party, offering terms and prices comparable to what was offered to the entity and other owners.
The death, retirement or disability of an owner frequently triggers a buy out. Work with your San Diego business attorney to define “disability” in your buy-sell agreement. A buyout may also be triggered when an owner is no longer employed with a business, either by choice or involuntarily.
A buy out may also be triggered when a business, voluntarily or involuntarily, files for bankruptcy.