Despite its name, a Florida buyout agreement isn’t about buying or selling a company. Rather, it’s a binding contract drawn up between business partners detailing future ownership of the company.

It’s one of the strongest ways to define how the business will be transferred in the event of disability or death.

What to Include in a Florida Buyout Agreement

Each buyout agreement is different depending on the business, but there are a few core elements to include.

The events that trigger a buyout of one partner’s interest under such an agreement usually include:

  • An irresistible offer from an outsider to purchase the partner’s interest in the business
  • Resignation or retirement of one of the partners
  • A partner’s bankruptcy
  • Foreclosure of a debt secured by the partnership interest
  • A divorce settlement where a partner’s spouse stands to receive a partnership interest
  • Incapacity, disability or death of one of the partners

The Business Valuation

A solid Florida buyout agreement must identify a fair price for the business. It’s this part of the agreement that lays out how the existing owners’ share of the business should be priced.

One of the most important elements to remember here is that the value of the business is dynamic. It can change drastically over time, so a good business valuation method should be considered.

It’s an area that’s all too easy to get wrong because many buyout agreements templates just state that the business will be appraised. This can be a problem since professional appraisals are costly and can result in conflict as to who pays that bill.

Another issue arises when parties disagree with the valuation. A less expensive option, and perhaps a solution for your particular business, is to hire an industry-relevant business broker to evaluate the business. But again, partners may end up disagreeing with the evaluation.

Another solution is to use a clear and agreed-upon formula to value the business interest. Partners can agree on a specific formula in advance to avoid conflict later on.

Many business partners prefer a formula approach to evaluating the business, and you always have the option to use a broker or appraiser as a backup if there is a dispute or a second opinion is needed.

Don’t Forget the Life Insurance Cover

It’s important to ensure that there’s life insurance cover for the business, or even for the owners in their individual capacity when drawing up a buyout agreement. This cover should reflect the approximate buyout value of the company. It should also be audited on a regular basis to keep up with the business’s growth as well as other changes in market valuation.

Plan Ahead for a Successful Business

A Florida buyout agreement is a vital part of a business’s succession planning. There’s a great deal that can go into such an agreement, but the main things you should include are the buyout structure, trigger events, the value of the business, and how the agreement will be funded – be it out of the partner’s pockets or with insurance. With these included in the agreement, you can ensure that your business will survive in the face of difficult events, like an owner’s incapacity or death.

If you do want to plan ahead for a successful business, or perhaps sell a share of the business, an experienced attorney will work closely with you, the partners and professional appraisers to ensure you receive an accurate value for your business interest.

What’s more, an attorney will ensure the buyout agreement for your business is fair, exact, and includes all the necessary elements for a valid and detailed document.

Contact the Principal Law Firm team today to set up a consultation and make sure your business has a solid buyout agreement in place.

 

 

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