Do I Always Have to Consider the Four D’s in a Buy-Sell Agreement?
When you start a business, it is always a smart choice to create a buy-sell agreement. A buy-sell agreement will protect the investment that you make and allow you to avoid myriad legal complications in the future. The agreement is created between partners or co-owners in the business and it protects everyone’s interests.
When you are creating your agreement, you always need to consider the four D’s in a buy-sell agreement. The four D’s include death, disability, divorce, and discharge. An experienced Irvine, CA business lawyer at Brown & Charbonneau, LLP can help you to create a plan for the 4 D’s so you are prepared for whatever the future may bring.
Why You Always Need to Consider the Four D’s in a Buy-Sell Agreement
In partnerships and closely-held businesses, selling a share in the business can be very difficult. If one of the co-owners decides to leave the company, or passes away, becomes disabled, or gets divorced, the transfer of the ownership shares of the business may not go smoothly. In some cases, there are disagreements about the future of the business, or the people who end up with an ownership share may not be able to work together effectively. This can undermine the success of the company.
When you start a business with someone else, you depend upon that person to be there with you to make the business work. Unfortunately, you never know what the future will bring. Your business partner could become disabled and unable to continue working, or could pass away and leave his share of the business to his child with no skills or abilities who you do not want to work with. Your business partner could also get divorced and, as part of the divorce, the court could order that he or she give a share of the company to an unpleasant ex-spouse who no one wants to work with. If any of these things happen, it could become very difficult for you to continue running successful operations.
When you create a contract and consider the four d’s in a buy-sell agreement, you can avoid these undesirable outcomes. You can specify exactly what should happen if someone needs to leave the company for any reason. The agreement may give the other business owners the first right to purchase ownership share upon death, discharge, departure, or disability. The agreement can also specify a process for allowing someone to leave and placing a value on his ownership in the business so no disagreements arise.
Drafting an effective buy-sell agreement involves carefully negotiations to create a plan for the four d’s that everyone will be comfortable with. The agreement needs to be detailed enough to be enforceable and needs to protect the interests of the party leaving the company as well as the remaining owners who will continue with operations. An experienced Irvine, CA business lawyer at Brown & Charbonneau, LLP will provide you with assistance through the process of creating an agreement for your company. Call today to learn more.