Mercer Capital’s article discusses a very important topic – when is the best time to review your company’s Buy Sell Agreement?

“Almost every privately owned company with multiple shareholders has a buy-sell agreement (or other agreement that acts as a buy-sell agreement).

If your business is like most companies, then you have one too. You likely had an attorney draft the document for you several years ago. You and your fellow shareholders might have had some discussions about the specifics of the buy-sell language at the time, but these discussions were likely minimal. You then signed the document, put it in a file cabinet in the office and have not looked at it or thought much about it since.

True? Well, this might be an extreme example, but it highlights an important issue – most business owners do not have a current understanding of the details and potential pitfalls that lurk within their own buy-sell agreements. Most view these agreements as obligatory legal documents that can be forgotten about until needed. Unfortunately, when a buy-sell agreement is needed it is too late to fix any problems within the agreement.

For the past several years, Chris Mercer, the CEO of Mercer Capital, has used the image of a ticking time-bomb as a metaphor of what might be awaiting some business owners within their buy-sell agreements. Would you ignore an actual bomb that was ticking away in your file cabinet? Of course not, and you should not ignore your buy-sell agreement either.”

The article explains the Six Things That Should Be Clear in Any Valuation Process Agreement:

  1. Standard of value
  2. Level of Value
  3. The “as of” date
  4. Qualifications of the appraiser(s)
  5. Appraisal standards to be followed
  6. Funding mechanisms

If you are an owner of a valuable business that has multiple owners ask yourself the following questions:

1.  Does your company have a Buy Sell Agreement?  If not, why not?  You and your loved ones could suffer severe adverse economic consequences unless the owners adopt a Buy Sell Agreement.

2.  If your company has a Buy Sell Agreement how long has it been since it was reviewed?  If your answer is more than one year it is time to review the agreement.

3.  Do you understand all of the provisions in the Buy Sell Agreement?  If not, you must take the time to understand the entire agreement and modify any language that is a problem.