Buy – Sell Agreements
“Experience when you need it most” is the motto of Badeaux and Associates for its business owner clients. The senior attorney, Badeaux, has represented hundreds of business owners in the Clear Lake and surrounding areas and has structured, negotiated, drafted and implemented their buy-sell agreements. Most importantly, the buy-sell agreements that Badeaux and Associates drafted for clients at the beginning of the business relationship also held up later when the parties disagreed and looked to the terms of the buy-sell agreement. The buy-sell agreement written by Badeaux and Associates withstands controversy, and the parties had an orderly transition of ownership without costly, time consuming litigation.
Hiring a law firm like Badeaux and Associates with knowledge and experience in business law and its related matters, should give your company an edge over advice from a non- business lawyer, especially in a significant, possibly once in a lifetime transaction of buying or selling a business.
Badeaux and Associates has represented clients in Clear Lake City, Pasadena, League City, Kemah and surrounding areas in the industries of light manufacturing, computer software and hardware, NASA contractors, real estate developments, inventions, vast array of retail operations, and franchises. The business owners have been one person LLC’s, companies with 100 employees, companies with annual revenues of $100,000; up to $10 million.
What We Offer
- Advice Structuring and documentation for:
- Buying or selling
- a company
- business assets
- real estate
- owners shares or units
- Buying or selling
Buy-Sell Agreements to Restrict Owners
The law firm of Badeaux and Associates strongly recommends Buy-Sell Agreements for anyone who owns an interest in a corporation, or an LLC, with more than one owner. The purpose of the Buy-Sell Agreement among the owners is to limit the transfer of ownership among the owners, and not let it accidently be transferred to a spouse on divorce, or heirs of owner on death.
Badeaux and Associates has a checklist of items the owners can consider as “triggering events”, i.e. when the remaining owners can buy out an owner. Examples of common trigger events are incapacity, death and divorce.
Buy-Sell Agreements to Transfer a Business
If you are buying or selling a business, the deal will almost always be structured either as an asset purchase or a stock purchase.
In concept, the easiest way to buy a business is to purchase a seller’s assets, free and clear of any liabilities. The purchaser is not actually buying the business entity itself. Thus, an asset purchase is much like buying the seller’s merchandise without buying the store.
As a rule of thumb, a buyer will usually prefer an asset purchase agreement. Some of the reasons why are:
- The buyer has the ability to acquire assets only, without assuming any liabilities of the seller. The buyer can also pick and choose which assets to acquire. Conversely, the seller can choose which assets to keep.
- The buyer gets a “stepped-up” tax basis on the assets being acquired.
- The buyer usually has the option but not the obligation to hire employees of the seller’s business.
- The buyer also has the ability to pick and choose which contracts to assume.
In simple terms, a stock purchase requires the selling shareholders to transfer their stock to the buyer. In contrast to an asset purchase, the buyer is actually taking over the seller’s Company’s liabilities and assets and not just purchasing the merchandise. In essence, the buyer steps into the shoes of the seller’s ownership of the Company.
- All other things being equal, sellers will usually prefer a stock purchase agreement because of favorable tax consequences. They may be able to realize capital gains treatment on the sale of stock. This avoids “double taxation” that can result with an asset purchase where the business entity is first taxed on sales proceeds, and the shareholders are then taxed again on distributions that may then be made to them.
- The result can be a seamless change of ownership. The “store” may look like it is under new management but title to corporate assets and everything else can remain the same. Thus, there is a better chance of preserving the status quo. Employees can remain in place. It may not be necessary to change title to assets or assign existing contracts to a different business entity. Good will and other intangible assets remain with the seller’s business.
- Buyers are wary of stock purchases because they end up assuming liabilities of the seller. Thus, a seller must anticipate that a buyer will expect some concessions. The buyer may, for example, insist on very strong indemnification language from the seller. The purchase price may also be adjusted accordingly.