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The importance of buy/sell agreements

MWE’s Alan Materazo talks about the importance of buy/sell agreements and how often business owners and shareholders should update it.


Read: Ensuring a peaceful succession with a buy/sell agreement


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Transcript:
Buy/sell agreements are very important for small business owners that have a partner, or another shareholder, or multiple partners or shareholders. You've got to be thinking about it when you form your entity, or at least when you first get your partner or shareholder in. The buy/sell agreement is what governs what's going to happen at some point in time in the future, when, either you or your partner, passes away, or otherwise exits the business. Lots of problems that business owners face at that point in time can be averted by having a proper buy/sell agreement. A business that's just starting, a group of partners getting together to form something, when they're putting together their partnership agreement, or their shareholder agreement, that's the time when they need to think about the buy/sell. It's laid out how they're getting in and how they're getting out. Now, buy/sell agreements are kind of fluid by their nature. They can be revisited at any time during the business' life. Partnership agreements, or shareholder agreements, can be amended. The one thing that's really important about keeping them current, is keeping the values current. What I see, many times, is that a buy/sell agreement is set up at the beginning of an entity's formation, and an amount is determined as to the value of the shares of the business. And then, they forget about it for 10 years. Their buy/sell agreement is probably stale at that point, and if something were to happen, the family of the deceased shareholder is going to get an amount that's probably not representative of the current value of the shares that they hold. The valuation on the buy/sell has to be updated at least every two years.
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