Buyout Agreement Price
How to set right price for your buyout agreement
Are you the owner of your own company and thinking about signing buyout agreement soon? Then you would probably need to know about one of the important buyout provisions that will be used to best handle future ownership changes within your company structure. Out of many things to consider, one of the big tasks is to decide the fair price for any future buybacks or buyouts that can happen. Agreement price is the standard term that is used in all buyout cases. It is not an easy task to determine a fair price for the true value of the company that will be perceived few years from now. In the end, you cannot know if the business will prosper and make a double digit growth or fail to dust in so many years ahead of you.
Why need to decide a price in advance?
When it comes to company's value and price determination, it is not easy to come up with an accurate price for a small and privately owned business entities, even if you have piles of up to date facts and reports. One of the reasons is that there is no public market for small business sectors, unlike publicly traded companies. Even if you have a way of finding out how much similar businesses were sold for, there would be no guarantee that your own company would be valued for a similar price. The true value of the company could be depending on the current economy and competitions in the same industry, health of the business structure and plus many other factors.
No matter how hard it sounds, this job needs to be done in advance of a company sale, in order to prepare an appropriate buyout agreement. If you neglect to do this as an owner, you would end up legal problems over the price whenever the owner's interest is bought under the buyout agreement. And if the divorce or death of an owner is involved in a buyout, it would become harder to negotiate due to emotions of the owner's spouse or any other related parties, thus usually resulting in a lawsuit in the end.
If a co-owner dies, then the remaining inheritors are likely to set a very unfair price in the absence of the buyout agreement. Or the spouse might simply not know how the business is operating and how much of profits it has been generating, therefore not familiar with a fair price the interest. Also there could be an agreed Buyout Agreement Payment Terms which was already signed on both parties when the agreement was prepared. It is an important option that the buyer can continue with, even when the inheritors run the company.
There is no perfect formula on deciding fair price, but it would be a great help if you choose to set the buyout price in advance. That way you can allow you and your co-owners a chance to think about and discuss the matter of reasonable price for your company at the time of no planning to sell out. In order to determine buyout price, all of the company’s owners should agree upon a certain preset price that will be a true value years from now. No one knows if the business will be prosperous or not in the future. Therefore, a common way of determining a fair buyout price would be using fixed price or using book value based on the year end balance sheet.
If you are planning to prepare Buyout
Agreement for your company, make sure that you have written
legal forms signed. Any signed document is legally binding, so consult
with your own lawyer or accountant for any questions. For easy
downloadable forms, go online and search for Free Legal Forms and you
should be able to find many general legal forms and documents such as
bill of sale, power of attorney and corporation legal forms.