I’ve seen it really happen. I was representing the seller of a successful contracting business. He was selling to two guys who’d been working in it for years. They were both in their forties and had families. They financed most of the purchase from the former owner and even signed mortgages on their houses to secure the promissory note.
They were excited and ready to take the business to the next level. I remember sitting at the conference room table and commenting to them, that they should get a buy-sell agreement in place. They responded that they would at some point. They just wanted to get the business growing and making more money.
A year later, I received a call from one of the young men. With sadness in his voice he told me that his partner had just died in his sleep from a massive heart attack. After consoling him for a few minutes, I asked if they’d ever gotten that buy sell agreement in place. He said no, we never got around to it. Then he asked me, what was going to happen to his business.
Well, I couldn’t give him a lot of advice because I still represented the seller. But, I can say that over two years later, the surviving owner is still embroiled in litigation with the wife of his deceased partner and his business continues to struggle.
If you’re in business with a partner, what happens if one of you dies, becomes disabled, leaves the business or there is a dissolution?
Without a buy sell agreement, the remaining partner could be left with years of litigation with a surviving spouse or could be forced to sell out because he’s unable to raise the money to buy out a departing partner.
What is a buy-sell agreement?
A buy sell agreement defines what happens when one of the “four Ds” triggering events happens: death, disability, departure or dissolution. The agreement spells out an agreed-upon formula for what happens, what value is received on all sides and how that value is received. It generally calls for the survivors to buy — and their heirs to sell — the deceased owner’s share in the business.
When a business partner dies, the business is usually left in turmoil. With a properly drafted buy sell agreement, the surviving partner and the surviving heirs of the deceased partner will be left with one less struggle with which to deal.
Attorney Andrew Garcia, your SouthCoast Business Attorney, is a principal of Phillips Garcia Law. He’s created a Business Legal Planning system that will walk you through the process of forming your Massachusetts corporation. Locally he has appeared live on WBSM-AM radio and nationally on NBC’s Today Show and Fox’s Fox & Friends program. If you are interested in learning more about his Business Legal Planning services, just contact him at firstname.lastname@example.org or by calling (508) 998-0800.