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Pay Me Now or Pay Me Later is a series of short tips on common legal mistakes small business owners make.

Tip #2 – Put in Place an Appropriate Buy-sell Agreement Among the Business Owners

Many businesses are started by multiple owners, often individuals expected to contribute different resources to the business. Frequently one owner will contribute the ideas and/or intellectual property and will be involved in the day-to-day aspects of the business and other owners may contribute capital to the business. Each of these owners may have different financial needs and expectations from the business. Failing to consider all of these issues in connection with the formation of the business and/or failing to put in place a buy-sell agreement among the owners addressing what is to happen to an owner’s ownership interest in the business if the owner dies, becomes disabled or a dispute among the owners arises can cause great financial and emotional strain on the business and its owners which can easily lead to legal disputes and, ultimately, the failure of the business. When a business is commenced, all the owners are normally excited and ready to go and they often fail to consider the “what if” scenarios of the future. “What if my business partner dies or wants to sell,” “what if I die or want to sell,” “what if we can’t agree on fundamental business decisions,” “what if my partner fails to support the business as we currently anticipate,” etc. Addressing these “what if” scenarios in a written buy-sell agreement can mean the difference between business failure and survival when these inevitable scenarios ultimately come to pass.

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