Buy-Sell Agreement For Small Business

Ambiguities in a buy-sell agreement are usually a source of conflict about the procedures necessary for the occurrence of a triggering event and the value at the time of a triggering event. The buyer and seller in the transaction may feel that they are being deceived on the other side. Such a conflict can give rise to years of costly litigation and hostilities between buyer and seller. As mentioned above, buy-sell agreements usually contain an appraising clause with the terms of the buyout and often a definition of value. “Fair value” and “fair market value” are two frequently used definitions of value, but they are distinct and different artistic terms. They have a very different impact on the dollar value that an auditor or accountant would obtain to determine the value of a business interest. It is therefore important to define the value standard applicable to the purchase-sale agreement. Purchase and sale agreements may also set out the terms of redemption. For example, once the valuation is established, the purchase-sale agreement may provide that 20% of the purchase price must be paid at the time of closing, while the remaining 80% is paid at a set interest rate for a limited number of years. Taking these conditions into account in writing when establishing the purchase-sale contract helps to define how the purchase price is paid.

When financing is used, homeowners should be cautious when indicating a fixed interest rate; For example, low interest rates in the current business environment may be too low for a future purchase in an environment where interest rates are higher. Some homeowners may wish to use the “Applicable Federal Interest Rate (AFR),” set by the IRS as the interest rate on debt and generally used as the minimum interest rate for debt. The IRS sets the AFR monthly for short-, medium- and long-term instruments. Others may wish to design financing conditions that reflect the interest rates of the time market, for example. B “the key rate plus 2%” or “Libor plus 3%”. All these conditions should be discussed and understood by the owners at the time of the creation and execution of the purchase-sale contract. Use our buy-sell agreement to decide what happens to a business owner`s shares after a life-changing event…

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