Buy-Sell Agreements at the Time of Ownership Transfer Events

A buy-sell agreement usually ensures the continuity of ownership in the business and, in practice, most deal with two events: death and disability of the owner. But, what about other transfer events that are often more harmful to the remaining owners? For example, does your client’s buy-sell agreement cover transfers caused by personal bankruptcy or divorce; forced termination of the owner’s employment; or irreconcilable differences amongst the owners? 

In the incident of bankruptcy or divorce, the buy-sell agreement should give the business first opportunity to acquire that owner’s interest at the time of this involuntary transfer. On the other hand, no simple provision exists to deal with the termination of an owner’s employment. Instead, a client should seek an advisor that will help the owners weigh the alternatives. Possibly the most valuable asset of a buy-sell agreement becomes available when owners get locked into a bitter dispute. The agreement often settles this dispute by forcing one or more of the irritated owners to sell their ownership and leave the business. 

See John Brown, Buy-Sell Agreements Ignore Most Lifetime Ownershihp Transfer Events, BEI Exit Planning Solutions, October 10, 2016. 

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.