The buy-sell agreement is one of the most important corporate documents in a privately-held business because it represents the terms of trade between shareholders in the company.
It is especially important considering that:
- Private companies have no ready market for their stock, and
- Owners of private companies typically have a significant amount of wealth tied up in their private company stock.
Your buy-sell agreement is a document that should change as the business changes. Therefore, it should be reviewed annually. As part of this annual process, the company value should be recalculated and defined in the agreement so that inside shareholders know the value of their holding and how they are transferred.
If for no other reason, revisiting your buy-sell agreement annually is worth doing simply to make sure that the company can afford to fund any transactions covered in the agreement, since the company is typically the source of funding in private company world.
With a new year upon us, now is a great time to dust off your company's buy-sell agreement and make sure it is in line with how your company has evolved in the past year. To help, you can use our buy-sell agreement diagnostic, which will lead you through a series of questions to identify whether your company's agreement is in order. Happy New Year!
Mario O. Vicari is a director with Kreischer Miller and a specialist for the Center for Private Company Excellence. Contact him at Email.
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