Buy-Sell Agreements in Texas: What You Need to Know

AdobeStock_232564567-300x200Many small business owners in Texas need to account for the future of the ownership and continuity of their business, and a buy-sell agreement will often accomplish these goals. When you need help crafting a buy-sell agreement, make sure you are working with a skilled Texas business attorney.

Texas Buy-sell agreements can come into play for both unforeseen and foreseen events among owners, including a business partner dying, becoming disabled, getting divorced, or declaring bankruptcy. Other complications can include a business partner changing their vision for the company, losing interest in the business, needing a cash infusion, or acting in bad faith.

Necessary Elements of a Buy-Sell Agreement

You will want to establish a list of events that would allow an owner to leave your business. Formal notice can require a minimum form and amount of information and give the partners enough time to take certain actions.

Formal notice can be crucial in cases of divorce when partners may want to purchase a divorcing member’s ownership interest to avoid an ex-spouse becoming a business owner. A member will have a specific amount of time to notify the other partners of these changes.

Valuation is another important element to establish early on because, without it, there will often be disagreements over this subject. If you do not create this provision, partners will always choose the method most advantageous to them personally, and disputes will often lead to litigation.

You will want to determine the price of any shares for a departing owner, which may be determined simply by calculating the net value of your company’s assets. It is also important to determine the manner in which a departing owner will be paid for their shares and whether a payment will be made entirely in cash, a lump sum, or installment payments.

Sample valuation methods may include times revenue, a technique that uses a multiple of current revenues to determine the maximum value of a business; discounted cash flow (DCF), which is a method estimating the value of an investment using its expected future cash flows; book value or adjusted book value, the value of a company based on its internal financial statements; and liquidation value, which is a firm’s value after its assets are sold.

Two more critical considerations will be lookback protection and exit management. Lookback protection can require a business, or its remaining owners, to include a separated owner in any sale of a business that occurs within a certain time from the purchase of the separated owner’s interest to protect unsuspecting owners from owners engaging in self-dealing.

Exit management can involve placing restrictions on a former business partner to protect the company. Confidentiality agreements, non-compete agreements, and non-disparagement agreements represent three of the most common kinds of exit management clauses.

Call Us Today to Speak with a Texas Business Attorney

If you are a small business owner who needs help with a buy-sell agreement, it will be in your best interest to retain legal counsel. Make sure that you seek the help of a knowledgeable Texas business attorney who can guide you through the entire process and deliver the agreement that will best suit all of your immediate and long-term goals.

Structure Law Group, LLP has years of experience helping clients with companies of all sizes develop the best possible buy-sell agreements for their businesses. You can call (512) 881-7500 or contact us online to arrange a consultation with our Texas business attorney.