Partnership agreements help two or more people cooperatively develop and run an organization. Their agreement outlines the contributions they should make and the compensation they receive. It may include restrictive covenants to protect the organization if one partner leaves the business.
It may also include a buy-sell agreement. A buy-sell agreement facilitates the acquisition of one partner’s interest in the company by the other. Buy-sell agreements reduce the likelihood of significant conflict arising when partners’ priorities diverge in the future. Understanding when a buy-sell agreement takes effect can help partners make use of this important business document.
Buy-sell agreements are immediately binding
The terms of a buy-sell agreement guide the transfer of ownership between partners. Typically, either partner who signed a buy-sell agreement could seek to acquire the other’s interest in the company at any point while they run the business together.
The agreement technically takes effect as soon as the partners sign it. However, buy-sell agreements often include clauses that mandate specific triggering events before an internal buyout occurs.
While the partners can theoretically invoke the buy-sell agreement at any point after they begin working together, the circumstances when they seek to purchase the company must align with the requirements outlined in the buy-sell agreement.
People preparing to sign a buy-sell agreement at the beginning of a partnership or expecting to use one for a low-conflict business transaction may require legal guidance. Reviewing contract terms with a business lawyer can help partners understand the agreements they sign and recognize when they are in a position to pursue a partnership buyout.