WHAT SHOULD BE INCLUDED IN A BUY-SELL AGREEMENT IN MICHIGAN?

by Van Den Heuvel Law Office

Buy-sell agreements are vital to protecting your business’s future. You want to ensure that your business’s best interests are upheld down the line, so Michigan property owners should know what provisions need to be included in their buy-sell agreement. Our lawyers at the Van Den Heuvel Law Office can help you review your specific options at a consultation. 

What Is a Buy-Sell Agreement?

A buy-sell agreement is a contract that outlines the contingencies of a partnership deal. Also known as a business continuation agreement or buyout agreement, this contract determines how your business will be provided for in a future sale or purchase by a co-owner in the case of an owner’s death, disability or retirement. This contract is a tool that lets business partners complete advanced planning for their professional affairs to protect their best interests down the line. The contract prevents any of the owners from selling their interests to an outside party without every owner’s consent. 

Key Proponents of an Effective Buy-Sell Agreement

A buy-sell agreement is designed to address each business owner’s intentions for the future direction and management of the company. The agreement needs to clearly state how the business interests are valued. After all, what one owner considers valuable might not be worth much to another. Furthermore, businesses are comprised of many different variables, and each of those has its own value. Just like any major purchase, the final price is often settled through negotiation. 

To ensure a fair deal is reached for every owner, the buy-sell agreement needs to state how the owners’ interests are valued. There are three choices: 

• Fair Market Value: A fair market value is a hypothetical transaction between a buyer and seller. When both parties have a reasonable knowledge of the assets, they can transfer ownership without any compulsion. 
• Formula Approach: A formula price agreement sets a price based on the shares at the date that the agreement is invoked. 
• Book Value: The book value is based on an asset’s balance sheet, and the price is calculated based on depreciation over time. 

Customizing a Buy-Sell Agreement

Owners can make their buy-sell agreement as flexible as necessary. Different methods of valuation can be applied throughout the business’s life cycle. For example, the agreement may initially propose that book value is used, since the relationships between owners of a new business may still be unstable during its first year. Therefore, the agreement may assume that a fair market value is equal to its book value, eliminating the cost of an appraisal.

What Happens If There’s a Dispute?

Buy-sell agreements commonly involve disputes. Different visions of the business’s direction and even personal values can complicate how the ownership and control of the company are determined. Your buy-sell agreement likely doesn’t address every single applicable contingency, and in some cases, these agreements aren’t in writing.

Contact Our Lawyers to Discuss Your Buy-Sell Agreement

Before committing to the provisions, be sure to review the documents with an attorney who knows exactly what details to look for. Contact the Van Den Heuvel Law Office to review your contract. 

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