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New businesses and buy sell agreements

| Feb 17, 2015 | Business Formation & Planning |

New business owners in Michigan who are forming their companies with other individuals may need to draw up a buy sell agreement. A buy sell agreement could be an important document that attempts to protect all owners if an event, such as a divorce, death or bankruptcy, occurs.

A buy sell agreement attempts to ensure that a company cannot be seized by creditors if one owner goes bankrupt. An owner can be required to inform the others of a personal bankruptcy, and the document might allow the other owners to buy out that individual, protecting the venture from liquidation. The agreement might also include a clause detailing how this buyout occurs. In some cases, it could be a hardship to pay the bankrupt owner 100 percent immediately, so the document might suggest that the owner would initially receive 30 percent. The remaining amount may then be paid as a series of installment.

When a portion of the business is sold, it may need to be valued, and a buy sell agreement can outline a formula for determining the price of the business. This prevents the confusion of having more than one appraiser name different values for the company.

Whether an individual is forming a partnership or putting together a larger company, seeing an attorney may be one way to help ensure that documents, such as buy sell agreements and other contracts, are drawn up correctly. The attorney could also help make sure that other aspects of business planning, such as regulatory compliance, are not neglected as well.

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