Buy-Sell Agreements

Probably the most important agreement signed by the owners of a closely held business is a buy-sell, or shareholders’, agreement.  This agreement sets out amongst other things, the process by which an owner can monetize their investment in otherwise illiquid stock.  Since attorneys draft buy-sell agreements, business appraisers generally provide no input into the valuation provisions of the agreements.  For instance, a buy-sell agreement should be unambiguous as to:

• The standard of value

• Date of valuation

• Who will compute value?

• Whether discounts for lack of control or marketability will apply

• How a dispute over value will be resolved

Since we are rarely brought in to consult with the owners and their attorney at the drafting stage, we end up being hired on one side or the other when a dispute arises.  The dispute may arise before litigation is commenced.  However, we are often brought into a matter where litigation has already started.

It is clear, that it’s much more cost effective and less painful for all concerned if we are hired to consult with the company when the buy-sell agreement is being drafted or amended.  Besides giving clarity the points raised above, we can also advise on how to best protect the company and shareholders from future litigation over the specific valuation trigger events, such as employment termination, death, disability, divorce, and third-party purchase.

Let us help you put a fine point on the valuation section of your buy-sell agreement.