A purchase sale agreement determines when and to whom you can sell your share of the business and sets a fair price. How you structure your sales contract will determine who will buy the outgoing owner`s shares, how much the buyer will pay and how the sales contract will be put in place. There are four common buy-back structures: in a purchase-sale contract of the company, the company (“company”) itself agrees to buy the shares of a deceased, disabled or retired owner or partner. This agreement works best to simplify the conditions and financing for businesses with multiple owners or partners, especially if there are differences in age or health status, and expected departure dates between owners. It can also be a good choice for an owner who is looking for flexibility to nurture several potential successors before opting for the most talented. This plan is useful when a sole-managed business owner, who has no other co-owner or partner, wants to take care of a younger family member or an important employee to succeed him or her. The company can get a bonus on the heir ticket to finance the deal. Since it is unlikely that the older owner will ever have to buy shares in the counterparty, the agreement is considered “unique”. The purchase and sale agreement assumes that the shares are sold according to a specific formula to the company or other members of the company. While most buy-sells take death into account (although the contractual value is low or underfunded), many are completely unaware of what could be a heavier financial burden: disability. Disability is also poorly defined, unfunded or underfunded, if that is the case.
A disabled shareholder would expect his salary to continue and to receive a portion of the profit. If the disability is extended, how long could the company continue to pay? All of these decisions should be set out in the agreement. It should be a business decision based on pre-agreed terms, not emotions. And of course, the agreement on people with disabilities must be fully funded. If equal owners disagree significantly, the business may become “deadlocked” and not be able to continue to operate normally. In this case, the transaction may need to be liquidated. In the event of the death, disability or retirement of a counterparty, the continuation of the financial activity of the company could be affected. A purchase and sale agreement ensures that each shareholder buys life insurance on the other`s life, financing the purchase of their interest on that date. Purchase and sale agreements are often used by individual companies, partnerships and private businesses to facilitate the transition to ownership when each partner dies, annuities or decides to leave the business. A well-written sales contract can help your business get into the right hands if you or one of your partners retires, decides to leave the company, be hobbled or die.
For example, the agreement may prevent owners from selling their shares to outside investors without the consent of other owners. Similar protection may be granted in the event of a partner`s death. Another important factor in the buyback strategy is the choice of successor. During exit planning, some owners may be ambivalent about the chosen successor or present barriers that delay the designation of a business. This provides an opportunity to discuss different types of sales agreements.