Savvy business owners typically execute buy-sell agreements in order to protect their family’s biggest asset. It is, essentially, the last will and testament for your business. But just like a will, if circumstances change, a buy-sell agreement needs to be updated to reflect those changes. Here are five good reasons you need to meet with a Creative Business Lawyer™ to review your company’s buy-sell agreement right away:
Changes in business value. Many buy-sell agreements attach a specific value to the business, but that value can – and does – change with the times. A valuation that is now too high can be as bad as one that is too low, resulting in existing shareholders having to pay an inflated sum to a partner that is leaving the company.
Under-valuation triggering higher taxes. If the valuation is based on a standard that would conflict with the IRS’ application of highest-and-best-use valuation, you could be sitting on a tax bomb.
Marital issues. A divorce can wreak havoc on a privately held business, and if marital issues have not been taken into account in your business’ buy-sell agreement, you are asking for trouble.
Life changes. A good buy-sell agreement should take major life changes of its partners into consideration: death, divorce, disability, departure and dissolution. The agreement needs to cover contingencies for all these triggers.
Lack of funding. A buy-sell agreement is an empty shell unless it is properly funded and that funding matches up with the terms within the agreement.
The Parents Estate Planning Law Firm, PC
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