Buy-sell agreements are used in two different circumstances. One circumstance is when an entire company or its assets are being sold to a third party. The result is the company has new owners. The second circumstance is when owners of a company want to buy each other out. The documentation for this type of transfer can be called either a buy-sell agreement or shareholder agreement. An owner may want to leave the company in order to retire or go on to other ventures. Or the buy-sell agreement is used when an owner dies, gets divorced or becomes incapacitated.
Buying into a company or leaving a company in which you owned an interest is a major, possibly once-in-a-lifetime transaction. Hiring a law firm like Badeaux & Associates — with over 45 years of combined knowledge and experience with buy-sell and shareholder agreements — should give your company an edge over advice from a non-business lawyer. Badeaux & Associates is proud to state that the buy-sell agreements we have drafted for our clients who were buying or selling a company, or buying out other business owners, have been easily and readily enforceable and withstood scrutiny and attack.
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What Terms Should be in a Buy-Sell Agreement?
The terms of a buy-sell agreement should contain at a minimum:
- Itemization of what is being bought and sold, for example inventory, customer lists, website, goodwill
- Itemization of the seller’s liabilities and whether the purchaser is assuming same
- Names of existing vendors and ongoing contracts
- If business has a physical location and a lease, whether the seller’s landlord will allow the buyer to assume the existing lease or be required to negotiate a new lease
- Indemnities by and between the buyer and seller for events that occurred before and after the sale
- Whether the seller is required to work in the business for an interim period to assist in the transition
- Whether employees will remain with the company
- Whether the seller is required to sign a non-compete
Buy-Sell Agreements Among Owners to Avoid Outside Transfers
One purpose of the buy-sell agreement can be to limit the transfer of ownership among the owners, so that it is not accidentally transferred to a spouse on divorce, or heirs at law of an owner on death.
What Are Advantages of Buying or Selling the Ownership of the Business?
If you are buying or selling a business Badeaux & Associates will advise, structure and draft the buy-sell agreement to protect your interests whether you are the buyer or the seller.
- For a seamless change of ownership many buyers want to step into the shoes of the seller. That is accomplished by purchasing the company with all of its ongoing contracts.
- When a company is purchased in its entirety, there is a better chance of preserving the status quo and, therefore, of customer retention.
- Employees and the prior owner can remain in place for a smooth transition.
- It may not be necessary to change title to assets or assign existing contracts.
- Good will and other intangible assets can remain with the business.
- Buyers are wary of stock purchases because they end up assuming liabilities of the seller’s company. Thus, a seller must anticipate that a buyer will expect some concessions. The buyer may, for example, insist on very strong indemnification language from the seller. The purchase price may also be adjusted accordingly.
What are the Advantages of Purchasing Assets But Not Ownership of a Company?
- “Assets” include hard assets like equipment, inventory and furniture; and intangible assets like brand name and goodwill. “Asset purchases” do not include the legal documentation evidencing ownership of the company like the shares of stock.
- As a rule of thumb, a buyer will usually prefer an asset purchase agreement.
- The assets that are usually purchased include the company’s branding, website, equipment, merchandise, good will, client list and vendor contact, but exclude the stock of the company.
- By purchasing just assets rather than stock of the company, the buyer is protected from the liabilities of the seller’s contracts, and does not assume unknown or undisclosed contracts that contain long term obligations or payments by the company.
- The buyer can also pick and choose which assets to acquire, for example new vs. old inventory.
- The buyer usually has the option, but not the obligation, to hire employees of the seller’s business.
- The buyer also has the ability to choose which vendor contracts to assume.
Badeaux & Associates has represented business clients in Clear Lake, League City, Seabrook, South Houston, Deer Park and surrounding areas in the industries of manufacturing, retail operations, computer companies, franchises, NASA contractors, and real estate developers just to name a few. Our attorneys have over 45 years of combined experience. The businesses purchased or sold have been one-person or multi owner companies, LLC’s, Subchapter S, C Corporations, or partnerships.
Feel free to contact us at (281) 486-4737, or online.
Our business attorneys located in Clear Lake represent business owners throughout the Houston area. Many of our clients live in Clear Lake, League City, Friendswood, Pearland, Kemah, Seabrook, Dickinson, Deer Park, Pasadena, and other surrounding cities.