In our previous posts on buy-sell agreement considerations, we have pointed out several important points that, in our experience, are often unaddressed or lacking clarity in an agreement. To summarize, the five important questions your buy-sell agreement must answer in order to be effective are:
- What type of value estimate is required?
- When should the value be measured?
- What should be valued – the company as a whole or a partial ownership interest?
- Should the buyout’s funding mechanism be taken into consideration in the value?
- How will the value be determined?
Other concluding thoughts to remember as you review your existing agreement or develop a new agreement include:
- There is no perfect answer that fits all situations.
- Addressing these five questions will go a long way toward making your agreement more complete.
- Choose a structure that fits the needs and desires of the ownership group as closely as possible.
- Understand and agree to accept the shortcomings and trade-offs of the selected structure.
- Review the document on a regular basis to ensure that the agreement continues to serve its purpose.
We hope this series has been helpful and we welcome the opportunity to answer other questions or share our experience from other situations. Please contact us at firstname.lastname@example.org if we may be of assistance.
Whitley Penn continues to be one of the region’s most distinguished public accounting firms. With a strong base in Texas and a worldwide network affiliation via Nexia International, the firm is strategically positioned for continued growth both locally and internationally. Whitley Penn has been consistently recognized as “One of the Top 100 Firms in the U.S.” and “Best of the Best” by INSIDE Public Accounting. For more information on Whitley Penn, please visit whitleypenn.com.