What is Buy-Sell Agreement Negotiation?
A buy-sell agreement is a legal contract between the partners in a business. It provides guidelines for various events, such as if a partner leaves the company or retires, as well as how such events will affect their ownership stake in the company.
Once this agreement has been drafted, you should consider negotiating any unfavorable terms.
Read the rest of this article to explore common terms to negotiate in a buy-sell agreement and how a qualified lawyer can help you with the process.
What are Common Terms to Negotiate in a Buy-Sell Agreement?
Parties usually negotiate some of the following terms in a buy-sell agreement:
- Trigger events. These events cause a buyout to occur, such as retirement or partner disputes.
- Valuation method. How the business is priced can be discussed with partners. This could include using a fixed price that’s annually updated or an independent appraisal, for example.
- Funding. Parties might want to negotiate how the buyout is paid, such as if life insurance policies or cash reserves are used.
- Payment terms. If the purchase is paid as a lump sum, in installments, or via seller financing, this will be clearly defined in the agreement.
- Competition restrictions. These restrictions protect the company when one partner buys out the other. Parties might want to specify terms of a noncompete or nondisclosure agreement so that they’re reasonable.
- Default provisions. A buy-sell agreement might include specific consequences if either party fails to meet their obligations.
- Transfer restrictions. This specifies rules restricting who is allowed to buy or receive ownership transfers.
What are Tips for Negotiating a Buy-Sell Agreement?
When negotiating a buy-sell agreement, there are important things to consider to make discussions productive.
Establish Trade-Offs
It’s worth considering options besides price as these can make the deal more appealing. Consider payment schedule changes or creating performance-based incentives. When you focus on creative trade-offs, it can spark interest in all parties involved and prevent negotiation dead-ends.
Consider Potential Risks
Should you have to compromise and accept terms that weren’t favorable, you might be able to work around it with fallback options. Perhaps you could suggest shortening the agreement duration to protect your interests. Or, if one partner has reservations regarding paying cash, you could negotiate the purchase price without changing the payment method.
Clarify Who Can Purchase Shares
To prevent disputes, your negotiation should include clarity about which owners can buy shares. For example, you might want to negotiate that remaining owners have the first right to purchase and external buyers are allowed to buy shares only if existing owners refuse.
Provide Supporting Data
You should provide objective and accurate data to support your opinions as this strengthens your position during negotiations. Data you use will depend on what you’re negotiating, but it could take the form of financial records or market comparisons.
Before negotiations, have a clear understanding of the business’s financial situation. This includes gathering financial information regarding expenses, liabilities, and revenue so that you can make realistic proposals. This will also give you the confidence to negotiate.
Get Professional Input
Since a buy-sell agreement can take parties’ several months to negotiate and establish favorable terms, it’s beneficial to seek input from professionals, such as accountants, independent appraisers, financial advisors, and attorneys.
Hiring a lawyer can help you when negotiating the agreement to ensure you protect your interests and minimize your risks.
How Does a Lawyer Help with Buy-Sell Negotiations?
A qualified lawyer can help you in various ways during buy-sell negotiations. Here’s a rundown of what a lawyer will do before and during the process.
- A lawyer will confirm that the buy-sell agreement is clear when defining how and when ownership interests can be purchased or sold.
- They will negotiate fair terms, such as regarding business valuation, to prevent disputes in future.
- They’ll spot any hidden legal or financial risks so that you can protect yourself before they become bigger issues later.
- They’ll add new provisions should these be required, ensuring that these are drafted in a legally valid and clear way.
- They’ll negotiate terms that protect all parties’ interests, using their negotiation skills to know what clauses to argue and when to accept the terms.
- They’ll properly protect business information with appropriate clauses, ensuring that they’re legally valid and fair.
- They’ll coordinate with other professionals, such as financial advisers.
- They’ll make sure that the agreed-on terms align with the business’s goals.
- Besides negotiating contracts, a lawyer can also review your agreement periodically so that it’s updated and relevant.
Where to Find a Lawyer for Buy-Sell Negotiation
If you need to find and hire a lawyer to help you negotiate your buy-sell agreement, you don’t have to call traditional law firms in your area or ask people for recommendations, which can take lots of time out of your schedule.
By using an online legal network like ContractsCounsel, you can quickly connect with reputable lawyers in your area. All lawyers on the platform have been vetted and have experience in negotiating contracts. They can also draft and review contacts for you, giving you peace of mind that all your document terms are legally valid and clear.
