If you are one of several owners in a corporation or in a limited liability company, one good idea is to use a buy sell agreement. A buy sell agreement will allow your interest to be bought out by other owners in the business in the event that you die or are incapacitated or retire. Many times in a closely held business, it is difficult to sell the shares of one of the owners absent selling it to the other owners. It is also difficult to determine what the value of such shares is, especially if you are no longer here to help determine what the value is.

Most of the time, buy sell provisions are incorporated into a shareholder agreement (in the case of a corporation) or an operating agreement (in the case of a limited liability company). There are other provisions concerning the management of the company in these agreements, such as who has the power to make decisions within the company and if certain matters require a unanimous vote of the owners to do. For instance, if one owner wanted to take on debt within the company in order to expand and that debt is substantial, do all the owners need to agree? If the company requires additional capital, are the owners all required to add to their capital? Who has the power to hire and fire? Does this power extend to the owners of the business, too? Who has the power to make the day to day decisions? (more…)