Buy-Sells For Delaware Businesses
I can’t tell you how many times I’ve been asked to represent a client who finds himself in a messy dispute because his business partner who he thought would always be there voluntarily or involuntarily leaves. A voluntary departure occurs when a partner no longer wants to be involved in the company. An involuntary departure includes death or disability. The partner who’s leaving (or his spouse in the event of death) believes his ownership interest in the company is worth a lot more than my client thinks it’s worth, and my client is being threatened with a lawsuit to determine the price. Even worse is where the spouse of the deceased partner announces that she inherited her husband’s ownership interest, and now wants to be actively involved in the day to day operations and management of the company.
The first thing I ask my client to do is to bring in the corporate documents so I can review them. What I’m looking for is a buy-sell agreement that my client and his partner hopefully entered into when they formed their business relationship. There are many kinds of buy-sell agreements, but they almost always contain a procedure that the partners agreed to follow if one of them eventually leaves. By creating a buy-sell agreement, the partners chose to control their company’s destiny by reaching an agreement on these issues while they were getting along and treating each other fairly. Thus, instead of allowing a judge to decide what will happen, the buy-sell agreement provides the answers to the questions that arise, such as:
1. How is the value of the departing partner’s share of the business determined?
2. Does the owner who stays have to come up with the cash needed to buy out his partner's share
3. Can the departing partner sell his share to a stranger?
4. Does the company have to go out of business?
5. Can the deceased partner’s wife show up at work and act as an equal partner?
