If your business has multiple owners, a shareholder buy-sell agreement is essential. Though buy-sell agreements are ideally set up at the formation of a business, it may be beneficial to revisit the agreement to ensure that the current structure is still the best method for all shareholders.
Buy-sell agreements often fall into two categories: cross purchase plans or repurchase plans. A cross purchase plan allows the remaining owners the option of purchasing the departing shareholder’s stock. If a repurchase plan is implemented, the business acquires the shares of the previous owner. Shares may also be offered for purchase outside of the company, in order to replace the former shareholder; however, this should be very carefully considered before being implemented.
The price of a buy-out is also often set in a buy-sell agreement. Instead of a predetermined amount, most agreements specify a formula or process that must be used to determine the value of business at the time a shareholder leaves. Similarly, some buy-sell agreements will offer a timeline in which the departing shareholder will receive payments.
Though you may already have one in place, re-assessing your buy-sell agreement now will have you reaping the benefits later. A solid agreement will alleviate the stress on the business when a shareholder departs as well as guarantee a smooth transition of ownership.
column by STEVEN E. CRISMAN
BIO: Steven E. Crisman is the managing partner of Cross, Fernandez & Riley, LLP’s (C/F/R) Winter Haven office and leads their Agriculture Practice Group. He primarily serves the agriculture, manufacturing, warehousing and distribution industries. He has specific experience with citrus growers, cattle ranchers, citrus and other horticultural nurseries, citrus harvesters and other support industries as well as watermelon, blueberry and other growers. In addition, Steve provides comprehensive tax and estate planning, attestation and business succession planning services.