Got a Buy/Sell?
Sep 18, 2012
From Legacy Moment (09/14/2012).
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What if there were a simple test to help you decide if you need a buy/sell agreement?
As I've often said, a buy/sell agreement may be the most important, but most misunderstood and unappreciated document in the succession planning arsenal. In its basic form, a buy/sell agreement insulates the operation from unwelcome owners. It ensures an opportunity to continue the business of farming in the face of near-catastrophic disaster, such as the death or disability of an owner. A well-written buy/sell agreement may even function as referee if an ownership group becomes stressed to the breaking point over a disagreement.
Take a few moments to review the points below to decide if you need a buy/sell agreement:
1. Is Ownership by Outsiders Undesirable? This factor is most commonly seen in family organizations, but it can exist in any organization in which an existing group (in this case, owners) is tight-knit. A buy/sell agreement ensures that ownership interests cannot fall outside the existing group without the group's approval.
2. Is Ownership by Outsiders Subject to Approval? This is another common factor in the family enterprise, and it can be especially troublesome in a family farming operation where the existing owners are all immediate family and/or lineal descendants. The provisions of a buy/sell agreement should be written to ensure that all new ownership interests must be approved prior to transition.
3. Can Future Ownership Conflicts Be Foreseen? If it is anticipated that the remaining owner[s] would have difficulties coexisting with family members or other co-owners, a buy/sell agreement can ensure that the remaining owners are awarded first right of refusal for any interests that may become available due to death, disability, dissolution or divorce.
News & Resources for You:
When is the best time to negotiate a buy/sell agreement? (See Question 2.