Not Specific to Industry or Corporate Form

Many business owners think that their industry is different than all other industries in its unique problems and issues. They also tend to think that within their industry, their company is also unique. They are at least partially right.

Buy-sell agreements, however, are used in every industry where different owners have potentially divergent desires and needs — and that includes every industry we have seen to date.

Consider the many companies in any industry with these four primary characteristics:

• Substantial value. There are many hundreds of thousands of businesses that might be categorized as "mom and pop" enterprises (with no disrespect whatsoever), and generally do not attain significant economic value.  We will focus on businesses with substantial value, or those with millions of dollars of value (as low as $2 or $3 million) and ranging upwards to many billions of value.
• Privately owned. When there is an active public market for a company’s securities, there is generally no need for buy-sell agreements.  Note that this definition does not apply to joint ventures involving one or more publicly-traded companies, where the joint ventures themselves are not publicly-traded.
• Multiple shareholders. Most businesses of substantial economic value have two or more shareholders. The number of shareholders may range from a small number of founders or initial investors, to many dozens, or even hundreds of shareholders in multi-generational and/or multi-family enterprises.
• Corporate buy-sell agreements. Many smaller companies, and even some of significant size, have what are called cross-purchase buy-sell agreements. While much of what we talk about will be helpful for companies with such agreements, we write primarily for businesses that have corporate repurchase or redemption agreements (often mixed with opportunities for cross purchases under certain circumstances). In other words, the buy-sell agreement includes the company as a party to the agreement, along with the shareholders.

If your business meets the above four characteristics, you need to focus on your buy-sell agreement.  The “you” in the previous sentence pertains regardless of whether you are the controlling shareholder, the CEO, the CFO, the general counsel, a director, a working manager-employee, or a non-working (in the business) investor.

In addition, the above applies regardless of the form of corporate organization of your business. Buy-sell agreements are necessary and/or appropriate for most corporate forms, including:

• Corporations, whether organized as S corporations or C corporations
• Limited liability companies
• Partnerships, whether between individuals or between entities such as corporate joint ventures
  
• Not-for-profit organizations, particularly those with for-profit activities
• Joint ventures between organizations (which are quite often overlooked)