It can be said that any company that has partners needs to have a buy-sell agreement in place to detail how the ownership of a business is transferred if one of the owners dies, can no longer work or retires. Not having one in place can spell disaster to the remaining partners, or the family of the partner who dies or is disabled.

Having an up-to-date buy-sell agreement, with a certified valuation attached as an exhibit, will help all parties involved avoid litigation, stress and a myriad of financial problems. This is particularly important for minority owners, or a partnership where there is not a clear majority owner.

To many times partners leave the determining of value to chance and do not properly plan to ensure that everyone is protected and less money can go into legal fees and more into the pockets of the owners. As the name would indicate, a buy-sell agreement involves having someone who is selling an ownership interest and one who is buying the ownership interest. Having a buy-sell agreement in place ensures that the guidelines of who the interest can be sold too, and at what price, are in place to protect the good of the company. It is also important to note that it ensures that the buyers of the stock have to pay a fair market price for that ownership interest.

A key component to a buy-sell agreement is to have a regular update to the valuation done to ensure that the increase or decrease in business value is accounted for. This will make sure that everyone involved has a clear picture of what value is being placed on the business and nothing is left to personal interpretation.

Not having a regular update to the buy-sell agreement can cause significant problems for all involved. If the valuation is not up-to-date then you can be certain that there will be a dispute over the buy-sell agreement when something unforeseen happens. Consider the following example that happens consistently with businesses all across the country.

Three friends start-up a consulting company after they are all burned out with their corporate jobs. The friends realized they needed to put a buy-sell agreement in place and did so with an exercise price of $75,000 per 1/3 share of the business. (They chose to use a hard dollar figure rather than having the agreement mandate a regular valuation.)

As would be expected, the business continued to grow and do very well over the next 10 years. Salaries for the partners continued to grow and they are also seeing very large annual dividends that put their personal incomes around $400,000 per year. Even though the value of the business kept rising, the buy-sell agreement had an exercise price that was never updated. With everyone busy building the company no one even gave a thought to updating the buy-sell agreement and then disaster struck. One of the partners was hit by a drunk-driver and killed instantly. Within a couple weeks of the funeral the other two partners have a check sent to the wife of their partner for $75,000 for her husbands share of the business. After spending nearly 3 years and tens of thousands of dollars on legal fees, she finally gave-up the fight and accepted her fate.

To avoid this type of problem, and others like it, ensure that you have a buy-sell agreement in place that mandates a regular valuation be conducted to set the price for the ownership interests of the company. ValuationBroker will work on your behalf to find a firm that best matches your industry and will deliver you a report that is specifically designed to help ensure a buy-sell agreement has what it needs to withstand any legal scrutiny. The combined experience of our network does over 15,000 valuations per year and all are accredited through the American Society of Appraisers. To begin the process of having TOP NATIONAL FIRMS BID on your valuation, contact us today.