With all the day-to-day work that goes into owning a business, you may be overlooking some documents your company needs. To make the future a better place for your company, learn more about why you need a buy-sell or succession plan.

What is a Buy-Sell?

Sometimes a business partner passes away or decides to leave the company for some reason. Business interests may also be vulnerable during a partner’s divorce.

buy-sell agreement states how the company can deal with a departing partner’s business interest. Often, companies will buy back that business interest, but differences of opinion may arise on how to accomplish the buy-back.

There are two basic types of buy-sell agreements:

  • Cross-Purchase Agreement. The partners buy the departing partner’s shares in the business.
  • Redemption Agreement. The business entity itself purchases the partner’s shares.

It’s best to have a written document than to rely on good intentions. For example, Jack Z. owns Jack-n-Jill Enterprises with his sister, Jill. After Jill dies, her 22-year old son takes over her business interest. The company falters when Jack and his nephew fight over operating the company. Had Jack and his sister had a buy-sell agreement, he or the company could have bought her shares of the business instead of leaving the shares to her son.

What Is a Succession Plan?

Business owners sometimes want their companies to continue operating for years to come. However, it can be difficult if you don’t have a written plan.

succession plan is just that – a written document that details how a business will continue operating if the owner or a key employee resigns, is fired, becomes incapacitated, retires, or passes away. Without a succession plan in place, a company might be unable to continue.

For example, let’s consider Jack-n-Jill Enterprises again. This time, however, Jack and Jill both want to retire, but also want the company to continue operating. Because they had prepared a succession plan and kept it updated, the transition to new management was handled smoothly with little to no disruption to the company.

What Does the Future Hold for Your Business?

After all the hard work you put into building your business, it seems a shame not to plan for the business to continue even after you leave.

Attorney Bruce Adams assists clients like you with their estate planning matters. Call us at 256-237-3339 to schedule an appointment. We are located in Anniston, Alabama, but help clients in surrounding Calhoun, Cleburne, Etowah, and St. Clair Counties.

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