Thursday, December 31, 2009

Buy-Sell Agreements

I've never had one, but I have seen a few at the small companies that I've worked for. This is an agreement among the founders, a legal document, that specifies what restrictions there might be in terms of  selling shares of the company. Wikipedia puts it well, a "premarital agreement among business owners."

The idea is to prevent control of the company from being shifted without the agreement of partners. It's often limiting how shares can be sold, including to whom. It might prevent a spouse from moving control to a third party in the event of divorce or death. It also specifies pricing in some cases.

Why talk about it? We are considering adding a partner, and this person mentioned that if things didn't work out, they would want to sell their shares to a friend. There's a concern about new partners that we don't know about, so this came up.

I'll write more as we get more details.