A buy-sell agreement is an imperative document which every partnership or small company in Australia should have. It should be an indispensable part of your business plan while you are operating your company in Australia. A buy-sell agreement basically specifies the condition of the business in case any unprecedented incident takes place. A sudden illness of one of the partners or shareholders or the demise of any of them are few of the common instances.
Top ten crucial aspects about a buy-sell agreement
A buy-sell agreement is like the will of your business. So, you should draft it in assistance of the top buy sell agreement lawyer. You can optimize to sell any of the potential assets of your business or the business itself through it. To make things easier, here are the top ten aspects which you should know imperatively before drafting a buy-sell agreement in Australia.
- Every business is different
Nowadays, a number of buy-sell agreement templates are available which you can optimize. However, you need to remember that every business is different. So, quite naturally, you will need a different buy-sell agreement template. That’s why it’s always advisable to seek premium legal assistance to make the choicest decision for yourself and your company in general.
- Definition of a buy-sell agreement
A buy-sell agreement is basically an agreement between the owners of a company. These owners conventionally dictate events that will happen pertaining to the interests of each of the business owners. They are liable to do so after evaluating the current circumstances of each of the company owners in relation to the operation of the organization. These owners will subsequently provide clarification to the questions which result from transition and stress.
- Different ways of interest transition
The buy-sell agreement should specify a crucial aspect in relation to the seller business owner. This aspect includes the effective transition of the potential interest into the seller owner’s shares. This particular task can be performed in two effective ways alternatively. Say for instance, through a buyback or cross-sell purchase. The former (corporate buyback) means that the company will purchase back the shares of the departing business owner. Alternatively, the company can also pay for the value of the shares and cancel them subsequently.
Cross-sell purchase
A cross-sell purchase on the other end implies that the other business owners purchase the potential shares of the departing owner. As a result, they can expect to increase their shareholding capacity in the business.
- Occurrence of some crucial situations
A buy-sell agreement should be framed in a way which can resolve any potential event which occurs during the ownership transition. These generally include any of the situations given below.
- One of the principals of the company wishes to leave
- The abrupt death of any of the partners or shareholders
- An involuntary transition. Say for instance, appointment of an eligible guardian or bankruptcy lodgement or that of a levy by any of the potential creditors and
- A sale made involuntarily to a third-party
Some situations can also be considered applicable. These situations will again differ somewhat depending on the potential circumstances of the company owners and the company in general.
- Every business owner will require tax assistance
While a buy-sell agreement is drafted, it is imperative that each of the owners of the company considers this factor. Each of them should seek valuable tax advice about the company as well as about their own. The reason is a buy-sell agreement can result in potential personal and corporate tax liabilities. These obligations differ somewhat depending on the personal situations of every person. In case of insurance policies, the business owners need to ensure that whether the premium is considered deductible while meeting the tax purposes.
- The business structure
When drafting a buy-sell agreement, it is imperative that the structure of the business is taken into consideration. To ascertain this aspect, some crucial factors are worth considering. Say for instance, the person or business who can particularly buy the business, the mode of purchase or sale and so on. Whether or not the business owners are holding their interest via different legal entities in the company should be ascertained as well. Prominent instances of these legal entities include another company or trust etc.
- Enforcement by courts
The Australian court of law grants every business owner to enforce their buy-sell agreement in a lawful manner. However, it cannot be assured that the Court of Australia will certainly enforce any agreement depending upon the individual circumstances. The Australian Court enforces the conventional terms and conditions comprising the buy-sell agreement occurring between the potential business owners.
- Valuation vs. funding
Do you hold a substantial insurance policy concerning your Australian business? Then, it is good to know that there is a small difference between the sum to be paid for the share of the owner in the business and the sum which the insurance pays out. A buy-sell agreement can specify what will exactly happen in this kind of situation. The significance to frame a buy-sell agreement increases even more when the value of the shares is more than the insurance payout. The Commercial lawyers can provide you unmatched legal solutions in this matter.
- Integration with Estate Planning
A buy-sell agreement comprises an imperative part of a business plan. So it should be framed by keeping this factor in mind. Say for instance, the business wishes to transfer the shares to a trust or her or his estate. So, relevant clauses and terms should be included in the agreement accordingly. A good deal of flexibility should be given to the family members as well to ensure they are able to optimize this opportunity.
- It need not be a separate agreement
It is not imperative that a buy-sell agreement should always be a separate document. If you wish you can include the objectives of your partnership agreement or shareholder agreement in there. In case, you already have these credentials, it’s a good idea to either make a new agreement or revamp the existing one.
Bottom-line
So, now that you know about the top ten aspects of a buy-sell agreement, it’s time for you to draft one. The best commercial lawyers in Perth can provide you unrivalled legal assistance in this matter.
