Do I need a buy-sell or shareholder’s agreement?

If there is more than one owner in your ownership group, the simple answer is yes!  To ensure a smooth ownership and management transition from one generation to the next or among co-owners, all closely held companies should have a business succession plan.  And a critical component of that plan is a buy-sell or shareholder’s agreement.

A buy-sell agreement provides for the orderly transfer of ownership and control when an owner retires, dies, becomes disabled, terminates employment (for cause or otherwise), or leaves the business. It also creates a market for otherwise unmarketable ownership interests, providing a departing owner (and his or her family) with a fair price and the liquidity needed to retire (or to pay estate taxes or other expenses), when he or she may need it the most.

Among its many important terms and provisions, a buy-sell agreement should have a carefully designed valuation provision, which sets the purchase price for a departing owner’s shares. If the agreement undervalues or overvalues the company’s shares, it can result in unpleasant surprises, disputes or even litigation.

To learn even more about planning for buy-sell agreements, visit our Think Tank.

What is the typical timeline to draft a buy-sell or shareholder’s agreement?

The typical timeline to draft a buy-sell agreement usually ranges from as quickly as 2 weeks to up to 90-days or longer, depending on whether there is already consensus among the ownership group as to the agreement’s major terms and provisions, or whether we are helping the ownership to build consensus, especially if owners have differences of opinion regarding certain terms or provisions of the agreement.

How do you charge for drafting a buy-sell or shareholder’s agreement?

Unlike a lot of law firms, we do not believe in charging hourly fees to draft (or update) a buy-sell agreement, and, thus, do not charge by the hour (unless requested to do so by the client).  In most instances, we will propose a fee based on the complexity of the buy-sell planning arrangement being contemplated by the ownership and after gaining a better understanding of the project’s dynamics (i.e., does the project contemplate our helping to build consensus among the ownership group, for example, to incorporate [or omit] certain terms and provisions?).

Do you provide a benchmark valuation?

Yes, we provide a free benchmark valuation as part of our business succession and buy-sell planning service offering.  We believe that having a benchmark valuation is a helpful place to start the buy-sell planning conversation, especially if shareholders must make certain decisions early in the process, such as structuring decisions (i.e., whether the agreement will be structured as a stock redemption, cross-purchase, or hybrid agreement), funding decisions (i.e., determining how much life insurance funding is necessary, adding new bank debt), and so on.  To start our 7-step valuation benchmark process, click here.

Visit our Think Tank to learn even more about business valuation.

Where should I start?

An ideal place for you and your ownership group to start would be to review and complete our free 12-page Buy-Sell Planning Audit tool (click the image to the right for a free copy of the Audit tool).  This will give you and your ownership group a good understanding of your buy-sell planning goals and objectives, as well as how you feel about specific terms and provisions, including whether you feel certain specific terms and provisions should be incorporated into (or omitted from) the agreement.

In the meantime, we would encourage you to schedule a 60-min complimentary consultation to discuss your Buy-Sell Planning Audit results with us or to have us review your existing buy-sell, shareholder’s, or operating agreement on a complimentary basis.

Call us today at (949) 482-1850 or contact us here. We’ll help you to get started.