A buy-back contract should not be a separate document. You can include your intentions in your company`s shareholder contract or in your partnership agreement. But don`t assume they`re already in the document. If you already have these documents, it may be helpful to create a new buy-sell agreement that defines your specific intentions or to amend the existing agreement. A buyout contract or buy-back contract is a legal contract that describes what happens when a co-owner or partner exists in a business, dies or wants or has to leave the business. The purchase-sale contract should describe how the outgoing owner`s shares will be transferred. There are usually two different ways to do this — a cross-sell purchase or a buyout. A cross-sell purchase means that the other owners of the business buy the proportional owner of the business, which increases their participation in the business. A buyout means that the company buys back the company`s outgoing stake or pays the value of the shares and cancels them. The most neglected event, which should also be addressed by a buy/sale, is a handicap.
If one partner is permanently disabled or disabled for a long period of time, does the other partner want to pay their share if they are not working? A well-developed purchase/sale contract will also deal with the latter and the shares in which the disabled partner must be redeemed at a certain value. If you have an insurance policy, there may be a difference between the amount paid by the policy and the amount to be paid for the owner`s share of the business. The repurchase agreement can describe what happens in this situation, especially if the amount of the insurance payment is less than the value of the shares. This will help avoid potential conflicts or financial burdens in the future. After the sale contract has been triggered, the next important question is how to determine the value (purchase price) paid for the minority investor`s participation in the transaction.  In this context, the parties must decide whether the “minority discounts” apply to the calculation of the value of the minority owner`s shares. Business valuation experts generally apply discounts on the value of a minority stake in a private company, based on the lack of marketing and the minority investor`s lack of control in running the business. These discounts can be very steep, as much as 60% of the market value of interest.
A purchase and sale contract is a legally binding contract that defines how a partner`s participation in a business can be reassigned if that partner dies or otherwise leaves the business. Most of the time, the purchase and sale contract provides that the available share is sold to the remaining partners or to the partnership. There are many model sales agreements that you could possibly use. While they are useful, you should remember that each business is different and that a model probably doesn`t exactly cover your unique situation. That`s why we recommend legal and/or accounting clarifications to make the best decisions for yourself and your business. Many buy/sell contracts stop there, which is a big problem, because there are many other conditions to address.