When drafting your buy-sell agreement, understand that the other guy will not always be the first to die or to leave the company. It might be you. However, your buy-sell agreement is indifferent to timing. It will apply to you (and the other owners) whether you become a buyer or a seller.
If you know you will be a buyer, then you would likely prefer to buy at the lowest possible price. If you know you will be a seller, then you probably would prefer to sell at the highest possible price. If you don’t know which you will be (and you likely do not) and you act rationally, you will desire pricing in the buy-sell agreement that is reasonable regardless of future outcomes.
Applying similar logic with the other shareholders to other aspects of your buy-sell agreement leads to workable agreements. Failing to apply this kind of logic may embed traps in the agreement for one side and potential advantages for the other side. You just don’t know which side you will be on when a trigger event happens.
It is important to talk about the future when the interests of the parties are aligned, or at least not sufficiently misaligned to prevent discussion.
My challenge to you is to make time to work out important issues when drafting the agreement. Know this for certain: When your buy-sell agreement is triggered, the interests of the parties will have diverged and agreement will be difficult, or even impossible, to reach.
Accelerate the learning process and get Buy-Sell Agreements for Closely Held and Family Business Owners. And keep reading this blog (and share it with your friends, advisers, and colleagues), because we’ll be providing fresh insights as we continue to explore buy-sell agreements and how to make them work.