When entering into a business partnership, it is crucial to have a buy sell agreement. This agreement outlines what will happen in the event that a partner wants to sell their share or passes away. There are various types of buy sell agreements, and it is essential to choose the one that best suits the needs of the business. In this article, we will discuss the most common types of buy sell agreements.
1. Cross-Purchase Agreement
A cross-purchase agreement is a buy sell agreement between co-owners of a company. Each owner agrees to purchase the shares of the other owners if they wish to sell their stake in the company. This type of agreement is common in smaller businesses with only a few owners.
2. Redemption Agreement
In a redemption agreement, the company agrees to buy back the shares of the departing business owner. This type of agreement is common in larger businesses where there are multiple owners and the company has the financial means to buy back shares.
3. Hybrid Agreement
A hybrid agreement combines elements of both cross-purchase and redemption agreements. In this type of agreement, the remaining business partners have the option to purchase the departing owner`s shares, but the company also has the option to buy them back. This type of agreement provides flexibility and can be tailored to meet the unique needs of the business.
4. Wait-and-See Agreement
A wait-and-see agreement allows the remaining partners to wait and see what happens when a partner wants to sell their shares. If the remaining partners decide to purchase the shares, they can do so. If they do not, the company has the right to buy back the shares.
5. One-Way Buyout Agreement
A one-way buyout agreement allows one party to purchase the shares of the other party. This type of agreement is common in situations where one owner has significantly more capital than the other. In this case, the “wealthier” owner may want the option to buy out the other owner if they wish to sell their shares.
In conclusion, a buy sell agreement is a crucial document that every business partnership should have. There are various types of buy sell agreements, and it is important to choose the one that best suits the needs of the business. By outlining what will happen in the event that a partner wants to sell their share or passes away, a buy sell agreement can help prevent disputes and ensure the long-term success of the business.