Business owners should have legal and tax advice before entering into a sales contract with respect to the most appropriate provisions for their particular circumstances. There are a number of reasons why companies need sales contracts. Even if you trust your co-owner to fix his word, a written conclusion can provide security to all concerned. An agreement can also determine the fair value of each owner`s interest in the entity, which can be useful if a scenario results in a partner`s exit. A purchase sale contract serves as an exit plan, so that none of the partners are obliged to make hasty decisions in the event of an unexpected event. In practice, a buy-back contract serves several purposes. It provides for an orderly business succession mechanism if an owner decides to transfer his interests following a voluntary event, such as retirement. B, or an involuntary event such as death, disability, madness or bankruptcy. Such an event is called a trigger event as part of a purchase-sale contract. It also gives co-owners or the business entity the opportunity to maintain the option or obligation to purchase interest from an existing owner in order to prevent unwanted third parties or business partners from becoming owners. This is often a useful provision for family businesses. The importance of clear language can be summed up by an example drawn from the authors` professional experience: a sales contract between the owners of a holding company had a clause that summarizes: “The expert will determine fair value and the parties will act on the basis of that value. However, if such a party does not agree with fair value and the transaction has not been completed within 90 days of the date of the expert`s report, the transaction price is fair value added.
In this case, “fair value” had some meaning and “fair market value” had a totally different meaning. The difference between the value calculated on the basis of fair value and the “fair market value” basis was millions of euros. Sometimes buyback contracts require evaluation only after the triggering event; For example: “After a trigger event occurs, both parties will hire an expert to assess the participation of the owner who sells his shares. If the valuations are located in the 10% of each other, the values are average, and this average is the transaction price at which interest is purchased. If both valuations are outside 10% of the value of the other, a third appraiser will be selected, and this valuation will be used to determine the value of the transaction. In such a case, the third evaluator can help determine the final value, but sometimes these situations end up in court because one of the parties feels betrayed. Other life events such as retirement, divorce or even a significant disagreement between owners can also potentially affect your business and each owner`s decisions. Another important, but often overlooked, situation is bankruptcy. If one of the business owners goes bankrupt, it can have significant consequences for them personally and for the company, especially if they are directors.
So it`s a good idea to keep the options open to everyone. If you have an insurance policy, there may be a difference between the amount paid by the policy and the amount to be paid for the owner`s share of the business. The repurchase agreement can describe what happens in this situation, especially if the amount of the insurance payment is less than the value of the shares.