Sometimes buy-sell agreements do not require evaluations until the triggering event has occurred. For example: “When a triggering event occurs, both parties hire an appraiser to assess the equity interest of the owner who sells his interest. If the valuations are less than 10% of each other, the values are averaged, and this average is the transaction price at which the interest is purchased. If both valuations are outside of 10% of the value of the other, a third appraiser is selected and this valuation is used to determine the value of the transaction. “In such a case, the third appraiser can help determine the final conclusion of the value, but sometimes these situations end up in court because one of the parties feels betrayed. When a triggering event occurs, the buy/sell agreement provides the company or other owners with certain requirements or options (e.g. B a mandatory obligation to buy the shares of the selling owner or a right of first refusal), depending on the client`s objectives. In a sense, it establishes an exit strategy for owners at the beginning of the entity, which reduces the risk of conflict later when a triggering event occurs. Buy-sell agreements exist to protect the longevity of a business. When a significant member of the company leaves, there must be a process that tells the remaining shareholders and partners how to proceed. Since buy-sell agreements aren`t limited to the death of a partner, be sure to protect your business from outside forces by understanding their work. The ambiguity of a buy-sell agreement typically leads to conflicts about the procedures required when a triggering event occurs and the value at the time of a triggering event.
The buyer and seller in the transaction may feel like they are being scammed by the other party. Such a conflict can lead to years of costly litigation and hostilities between buyer and seller. No one wants to make an unforced mistake – and it`s not just a baseball speech. Few people would advocate unnecessary disruption to their business operations. But that`s exactly what you risk without a buy-sell agreement. A lawyer should not only draft and review the buy-sell agreement – accountants and business valuation experts should also review the valuation provisions of the agreement to identify conflicting or ambiguous wording before closing them. When evaluating, certain words and phrases have specific meanings for the examiner (such as “fair value” as opposed to “fair market value”), and occasional use of these words may result in unintentional conflicts in the future. An examiner can read the evaluation rules and make suggestions that help identify ambiguities. Such proposals could also refer to “non-controlling” versus “controlling” values, discounts due to lack of marketing and discounts due to no voting rights.
Accountants and appraisers can help identify issues with valuation language and help business owners and their legal advisors choose a more accurate valuation language. In a situation where owners wisely seek the advice of a lawyer, accountant or business valuator, each individual needs to know who each professional represents – whether it is the SME or one of its owners. It is the responsibility of a professional to specify this. It is important to know who represents the lawyer or accountant when it comes to how the purchase and sale contract is designed and reviewed. Chances are the process will be less emotional or combative if you`ve taken care of these details before substantial transactions take place. In addition, you can tear off the patch more easily if the buy-sell agreement is just one of many contracts, documents, and forms on your to-do list to start business operations. A purchase-sale contract is essentially a document that reallocates a business or partial ownership of a business when someone can no longer own (or no longer wants to be) the owner. Think of it as a kind of hybrid between an entrepreneur and a will, as it determines precisely how a company divides its assets and assets in the event of dissolution, sale of a business partner`s interests, death or disability of a co-owner. .