Texas Buy Sell Clauses and Related Material
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How to fill out Buy Sell Clauses And Related Material?
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FAQ
The valuation provision of a buy-sell agreement describes how a departing shareholder's business interest will be priced for purchase by the company or the remaining shareholders.
There are three primary types of buy-sell agreements: 1) the ?redemption? agreement, pursuant to which the business purchases the interest of the departing owner, 2) the ?cross-purchase? agreement, pursuant to which the remaining owners buy out the departing owner, and 3) the ?hybrid? agreement, pursuant to which the ...
Common events triggering a buy/sell agreement include death, disability, retirement, and divorce. The sales price is determined under a valuation method specified in the agreement. Common valuation methods include a fixed price, an independent appraisal, a formula approach such as a multiple of earnings, or book value.
Disadvantages: (1) The fixed price becomes outdated due the constant evolution of a business; (2) Owners seldom know the true value of a business and set unrealistic prices; and (3) Different triggering events may cause different values (i.e., death of an owner, retirement of an owner, removal of an owner, etc.).
Fixing the Purchase Price Such provisions fail to consider the fluctuations of the business's value and can cause an unfair result if the share must be sold at a predetermined price that does not reflect the business's current value.
If a fixed price set in the Buy-Sell Agreement is too high, then the buying owners or the company suffers. For this reason, it's a mistake for the Buy-Sell Agreement to state a fixed price for the company's ownership interest, unless the parties are required to update the price regularly.
The following pieces of information should be spelled out in a buy and sell agreement: a list of triggering buyout events, including death, permanent disability, bankruptcy or retirement, etc. a list of partners or owners involved and their current equity stakes. a recent valuation of the company's overall equity.
Mistake, Duress, and Fraud A mutual mistake?a mistake by both parties to a contract on an important issue?makes the contract unenforceable. However, a mistake by only one party does not necessarily make the contract void.