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Partnership changes often use buy-sell agreements

Partnership changes often use buy-sell agreements

All lasting businesses go through partnership changes over time, whether due to retirement, death, divorce, bankruptcy or to pursue new challenges. Business partners can plan for this eventuality by drafting buy-sell agreements, also called business prenups or buyout agreements. The written contract outlines the details of how the transition will happen.

Owners can create these documents as needed, but often they are included in a comprehensive business plan when formalizing the partnership’s structure. As with other essential business documents, these agreements can provide peace of mind knowing what comes next when a partner leaves.

How a buy-sell agreement works

This binding agreement addresses several crucial business issues. These include:

  • The percentage of ownership the partner has when they leave
  • Whether the remaining partnership buys them out
  • Who can buy the departing partner’s interest if remaining ownership chooses not to buy
  • Foreseeable events that precipitate the buyout

Removes uncertainty

These documents may sit for years before a partner contemplates their exit plan. Whether the exiting partner uses it to determine their course of action or the remaining partnership refers to what they need to do, having the agreement in writing ahead of time also can reduce the likelihood of a dispute, perhaps over the percentage of ownership and its value. It can also avoid the unnecessary expense of dissolving a successful business and creating a new one. Lastly, it can help eliminate contentious disputes among former allies.

Planning for the end is a good start

It never hurts to have a solid plan, even if it never comes to fruition. These agreements can be straightforward or more complicated in reflecting the needs of the partnership as it moves on to the next stage. To help ensure that the document is fair and binding, it is generally best to have an experienced attorney draft the agreement.