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Buy-Sell Agreements: What they are, When You Need Them, and How to Craft One

Do you own and operate a small business in Clearwater, FL or elsewhere in Pinellas County with at least one other person? Whether it is a partnership, limited liability company (LLC), S-corporation, or any other type of business, you should strongly consider adopting a buy-sell agreement. In this article, our Clearwater small business lawyer provides a comprehensive guide to buy-sell agreements, including what they are, when they are needed, and how to draft one that works for your situation.

What is a Buy-Sell Agreement?

The Legal Information Institute defines a buy-sell agreement as a binding contract between co-owners of a business. Among other things, it should outline the terms and conditions under which a co-owner’s interest in the business can be bought, sold, or transferred. The agreement helps to protect the financial interests of all parties involved, ensuring a smooth transition in the event of an owner’s death, disability, retirement, or other circumstances that may lead to a sudden change in ownership.

A Buy-Sell Agreement is a Good Option for Small Businesses With Multiple Owners

Who needs a buy-sell agreement? As a general rule, they are recommended for small and mid-sized businesses with multiple owners, including business partnership and multi-member LLCs. A properly drafted buy-sell agreement can be an essential tool in managing potential ownership conflicts and ensuring business continuity. It provides a clear framework for determining the value of a departing owner’s interest, as well as the procedures for buying and selling shares. 

How to Structure a Buy-Sell Agreement in Florida: Key Considerations

A buy-sell agreement should always be drafted, negotiated, and reviewed by a lawyer. In Florida, the specific provisions of a buy-sell agreement can vary depending on the unique needs and preferences of the parties involved. Key considerations that should generally be addressed include: 

  • Valuation Method: Establish a method for determining the value of the business and the departing owner’s interest, such as a fixed price, a formula, or an appraisal.
  • Triggering Events: Define the specific events that will activate the buy-sell agreement, such as the death, disability, retirement, or voluntary departure of an owner.
  • Buyout Terms: Specify the terms and conditions for the buyout, including payment terms, financing options, and any restrictions on who can purchase the departing owner’s interest.
  • Right of First Refusal: Consider including a right of first refusal clause, which gives the remaining owners the option to buy the departing owner’s shares before they are offered to external parties.
  • Funding Mechanism: Determine how the buyout will be funded, such as through life insurance policies, a sinking fund, or other financial arrangements.

Contact Our Clearwater, FL Business Contract Lawyer Today

At Clearwater Business Law, we are committed to providing solutions-driven legal representation to our clients. If you have any specific questions or concerns about buy-sell agreements in Florida, we are here as a legal resource. Get in touch with us by phone or (727) 785-5100 or contact us online to arrange your confidential initial appointment. From our Clearwater law office, we provide business law representation throughout all of Pinellas County.