Bass, Berry & Sims attorney Richard Spore provided insight on the use of buy-sell agreements in family businesses. These types of agreements should clearly define the terms by which shares of a company are bought and sold and can help prevent one individual from gaining a controlling interest.

A buy-sell agreement can ensure the survival of a family business, even in the midst of certain family events – such as divorce, death, bankruptcy – that could threaten the company’s bottom line and existence. For example, if business shares have been distributed to too many family members, “Problems can arise when people inactive in the business must be consulted to one degree or another about key management decisions,” said Richard. “Passive owners often resist shouldering the risks of change and can have conflicts of interest with those running the enterprise.’”

Ultimately, said Richard, “Buy-sell agreements need to make sense for all the parties involved, or people will refuse to abide by them. And that means the business may end up with the very problem it wanted to avoid in the first place – litigation. That’s expensive, difficult and painful for everyone.”

The article was published in several outlets and can be found at the links below: