Leaving a company is inevitable in any professional’s life, whether it’s because of retirement, career change or personal reasons. It’s the same for business partners, but their exit may impact the company more than others. That is why planning for it is crucial in any business partnership agreement. It can prevent potential disputes and ensure operations run smoothly even when major changes occur.
What are buy-sell agreements?
A buy-sell agreement is a legal document that outlines what happens when a business partner leaves the company. It is often part of the larger business partnership agreement, which covers day-to-day business operations. This agreement typically includes:
- How to determine the value of a departing partner’s share
- Who can buy the departing partner’s share
- How the company or remaining partners will fund the purchase
There are several common methods for valuing a departing partner’s share. These include using the company’s book value, agreeing on a fixed price in advance or hiring an outside expert to determine the fair market value. The buy-sell agreement should clearly state the chosen valuation method to avoid confusion or disputes when assessing the value of the departing partner’s share.
Why consider non-compete and dispute resolution clauses?
When partners leave, businesses may find it in their best interest to protect their competitive edge, such as trade secrets and intellectual property. That is why buy-sell agreements often include non-compete and confidentiality clauses. These conditions can stop the departing partner from:
- Establishing a competing business within a specified area
- Soliciting clients or employees
- Disclosing confidential business information
Note that these clauses must be fair in scope and duration for Florida courts to consider them legally binding.
If conflicts arise during or after a partner leaves, a buy-sell agreement can clarify ways to resolve them outside of court. These methods, like mediation or arbitration, are often faster and less costly than going to court. They can also keep matters private, help partners stay on good terms and avoid disrupting the business.
Pave the way for amicable exits
The end of a partnership shouldn’t be the beginning of a conflict. To ensure a smooth transition when partners part ways, consider consulting with a legal professional.