How much does a buy-sell agreement cost? A buy-sell agreement , sometimes called a "buy and sell" agreement, is a legal contract executed between business owners. The contract stipulates how one partner's share and stocks in the business will be handled if the partner dies or chooses to leave the business.
Buy-Sell agreements are vital documents that can dramatically change the organization of a corporation and must be drafted properly. The first question most business owners ask is how much a buy-sell agreement will cost. Let's explore this question and go over some general information about buy-sell agreements.
How Much Does a Buy-Sell Agreement Cost?
Many business owners choose to hire a corporate lawyer to draft a buy-sell agreement to ensure that the contract is legally binding and enforceable. Depending on where the business is located, various local business laws and contract laws can affect the legality of this important document.
There are two common types of buy-sell agreements, a cross-purchase agreement, and a redemption agreement.
- Cross-purchase agreement. This buy-sell agreement allows the remaining owners of the business to buy the former owner's interests in the company.
- Redemption agreement. A redemption agreement requires that the business entity, not other owners, buy the former owner's interests in the company.
In addition to dictating how a partner's share of the business will be transferred in the event of death or departure, buy-sell agreements may also help establish the value of a business.
Based on ContractsCounsel's marketplace data, the average cost of a buy-sell agreement is $975.00 .
Buy-sell agreement costs will vary depending on many factors. The complexity of the agreement and whether it is a buy-sell for a small business or a large corporation will directly impact the cost of a buy-sell agreement.
What's Typically Included in a Buy-Sell Agreement
Buy-sell agreements will vary depending on the business entity for which they are drafted. When drafting this agreement, a corporate lawyer will consider the business structure, whether the business is an LLC with partners or a corporation with shareholders, and any terms and conditions already laid out in the shareholders agreement or partnership agreement .
Although these contracts will differ and can be customized for a specific company, some standard terms that you will find in most buy-sell agreements include:
- Parties involved in the agreement. All owners of the business need to be included in the agreement. The agreement should also include the percentage of shares or ownership each party has in the company.
- Triggering event. Whether an owner passes away or chooses to leave the corporation, the triggering event should be included in the agreement.
- The buy-sell structure. The buy-sell structure will include whether the agreement is a cross-purchase or redemption agreement, who has rights to purchase the shares and the price of shares.
- Company valuation. Buy-sell agreements are a good way to establish the value of a company, and this can also be included in the agreement.
- Tax considerations. When an owner leaves a company and shares or ownership are transferred to other owners or back to the business entity, it can have various tax ramifications.
Who Pays for a Buy-Sell Agreement?
Like any legal contract that an attorney drafts, a buy-sell agreement will cost money. The company that is requesting the buy-sell agreement will have to pay for an attorney's time when drafting this document.
A lawyer can bill for the time to draft the agreement, review an agreement, or handle any disputes arising because of the agreement.
Examples of Buy-Sell Agreement Projects
Buy-Sell Agreement Drafting
The most common buy-sell agreement project is drafting the agreement. A company that needs a buy-sell agreement will contact a corporate lawyer, and a lawyer will draft an agreement to fit the company's needs.
Agreements will vary depending on the size of the business, the number of owners, the company’s value, and how the owners agree to execute the buy-sell agreement.
These contracts are very important and need to be drafted correctly to be legally enforceable. An experienced corporate attorney will know what terms and conditions and provisions must be included in the contract.
Buy-Sell Agreement Review
In some cases, a company already has a buy-sell agreement in place but may want the document reviewed or edited. An attorney can go over the current contract to ensure it is legally enforceable or make changes the company's owners request.
Buy-Sell Agreement Disputes
Like any situation that involves a legal contract, disputes can arise surrounding the agreement. If the parties involved in a buy-sell agreement have a legal dispute, they may hire an attorney to settle the disagreement.
An attorney would represent the party who believes that the opposing party has legally wronged them. In some cases, an attorney can help draft a more comprehensive agreement that suits the needs of both parties.
Drafting a Buy-Sell Agreement Cost
Drafting a buy-sell agreement requires the time and expertise of a licensed lawyer so legal fees will be incurred.
According to ContractsCounsel's marketplace data, the average buy-sell agreement drafting costs are $750.00 across all states.
Reviewing a Buy-Sell Agreement Cost
Even if the lawyer isn't drafting the contract, document review by an attorney will come with costs. Attorneys will expect to be compensated for their time and will bill their clients accordingly.
ContractsCounsel's marketplace data shows the average buy-sell agreement review costs to be $1,275.00 across all states.
How Do Lawyers Charge for a Buy-Sell Agreement?
When a company hires a corporate lawyer to draft an agreement, review an agreement, or help settle a dispute, the lawyer can structure their fee agreement in several different ways. Hourly rates are the most common fee schedule; however, flat fee rates are becoming increasingly popular for specific projects.
Hourly Rates for Buy-Sell Agreements
It is common for corporate attorneys to use an hourly rate fee structure. This means that the lawyer has a specific hourly fee and will bill a client for the number of hours spent working on a project.
The marketplace data for ContractsCounsel shows the average hourly rate for a corporate lawyer range from $275 - $350 per hour.
Flat Fee Rates for Buy-Sell Agreements
For specific legal projects, especially contract drafting, sometimes an attorney will use a flat fee billing structure. Using this fee structure, the attorney will provide the client a flat rate fee rate for their work on a particular project or case.
Clients should always be aware of what is included in a flat-rate fee. Lawyers may charge additional fees for revisions or review after the initial contract is drafted.
ContractsCounsel's marketplace data shows the average flat fee rate for buy-sell agreement costs to be $975.00 .
Get Help with a Buy-Sell Agreement
Do you need help with a buy-sell agreement project? If so, post a project in ContractsCounsel's marketplace to receive flat fee bids from business lawyers to handle your project. All lawyers on the ContractsCounsel's platform are vetted by our team to make sure you are provided with top-tier service.