Carefully drafted buy-sell agreements can help businesses avoid litigation and disrupted operations. When preparing agreements, business owners should strive to minimize the negative impact internal disputes can have by including terms regarding how to address the disputes. Partners could, for example, adopt negotiated methods for resolving conflicts internally.
Issues involving ownership stakes
Partners may have equal ownership stakes at first. As a business expands and improves, however, one partner may invest more into the company and grow their ownership stake. When a majority partner’s ownership increases, a minority partner’s control may decrease.
An agreement may cover specific situations in which a majority owner’s decision-making cannot override the wishes of a minority owner. Terms could also detail events that force a majority owner to buy out a minority owner’s share. Businesses may consider outlining specific arrangements for valuing an enterprise to avoid disputes related to a partner’s ownership stake.
Although partners may have established relationships, buy-sell agreements could help prevent conflicts. As noted by Forbes, clear communications and documenting the facts may also help partners find common ground. Owners who can resolve disputes quickly could find themselves managing more profitable businesses.
Keeping pace with changes
Buy-sell agreements may not resolve every issue that could arise. A business may need to make adjustments as the company grows. Former plans may no longer have relevance in a changing marketplace or expanded territory. An original agreement may not reflect unprecedented disputes and managerial decisions.
Major market changes could present unforeseen circumstances and disagreements. Businesses may need to turn to litigation to resolve unexpected conflicts when written agreements do not outline methods for their resolution. If allowed to continue for too long, disputes could lead to a loss of reputation and profitability.