By Fredrick P. Niemann, Esq., a NJ Shareholder Agreement Attorney
Every business should have some sort of buy-sell agreement, regardless of its size. However, buy-sell agreements are extremely crucial in a smaller business with few owners. While owners of small businesses often start out as friends, unexpected events occur, leading to disagreements among owners and often causing the business to suffer. Fortunately, many businesses owners are smart enough to sign buy-sell agreements when they enter the business. These agreements dictate the terms of the sale of a departing member’s ownership, often dictating who it can be sold to and what price it will be sold for. This helps avoid or resolve potential problems at a time when emotions and anxiety is high and the disagreements is likely to result as one owner seeks to leave the business.
Many owners often forget to include a key component in a shareholder agreement: a clause dealing with unexpected departures. Unexpected departures occur due to a number of reasons. Death, incapacity, disinterest, financial distress, divorce, or loss of a business license is only some of the reasons why an owner may be forced to leave a business. Whatever the reason may be, it is important that owners place a clause in their buy-sell agreement dealing with the unexpected departure of an owner.
The details of a buy-sell agreement addressing an unexpected departure are completely up to you. Owners of a business often place provisions that allow for the remaining member(s) of the business to buy the deceased or departing owner’s share of the business at a predetermined price. This gives the remaining owner(s) the option of keeping out family members of the deceased owner from joining the business. Another provision is one that restricts the shares of an owner to a spouse through a divorce. Similar to the provisions relating to a deceased member, this allows the remaining member(s) to restrict who owns the business with them. Finally, another common provision requires the sale of a departing owner’s shares to the remaining owners if the departing owner is convicted of a crime or loses their professional license. This ensures the remaining owners that the integrity of the business will be kept up and they will not be forced to work with someone they do not want to.
Buy-sell agreements are key to all businesses, especially small businesses. A properly crafted agreement can help ensure the success of your business even upon the departure of a co-owner. Please contact Fredrick P. Niemann, Esq., a qualified New Jersey Business Attorney today if you have any questions. He can be reached toll-free at 888-800-7442 or by email at fniemann@hnlawfirm.com/.