Every business or professional relationship you have today or will ever have will eventually end. Businesses fail. Partners move on to other interests. A business partner might become ill or even pass away. Other businesses are sold or merge into bigger companies. It is inevitable that business partnerships end. So, it only makes sense to plan for the end of your business relationship with a partner or partners. That’s what a buy-sell agreement can accomplish. The Big D’s- Triggering Events A good buy-sell agreement will contain a list of events or conditions that trigger a right or obligation for one business partner to buy the interests of another partner. Those triggering events usually include one or all of the following: Death, Disability, Disinterest, Dishonesty and Divorce. What happens after a Triggering Event? Once an event triggers, one business partner has an option or an obligation to buy another partner’s ownership. For example, if Bill becomes permanently disabled and can longer contribute to the company’s success, his partner, Carol, would have the right or obligation to buy Bill’s interests. Who sets the terms of a Buy-Sell Agreement? Buy-Sell Agreements are negotiated and agreed to by the owners of the company. It is always best to resolve buy-sell agreements early, before any of the owners know whether he or she is likely to be the buyer or the seller. Other Important Buy-Sell Provisions Phantom Income Taxation Most small businesses are “tax flow through” entities, meaning each owner must pay income taxes on her share of the company’s profits, even if the company does not distribute all of those profits in that tax year. “Phantom income” refers to income that is reported on an owner’s tax return but not actually received by that owner as a distribution. A good buy-sell agreement will address “phantom income” and protect owners from taxation without adequate distributions to cover those taxes. Dispute Resolution A judge from the Indiana Court of Appeals once commented that the only lawsuits nastier and more expensive than marital dissolution cases are lawsuits between business partners. Buy-sell agreements help to avoid lawsuits between business partners, because these agreements provide predictable results and fewer reasons to seek relief from a court. A good buy-sell agreement may also require mediation or arbitration as other ways of staying out of court rooms.

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Buy-Sell Agreements for Business Partners

Every business or professional relationship you have today or will ever have will eventually end. Businesses fail. Partners move on to other interests. A business partner might become ill or even pass away. Other businesses are sold or merge into bigger companies. It is inevitable that business partnerships end. Thus, it only makes sense to […]

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Should I Form an S-Corp or LLC for My Business?

Launching a new business venture can be a time-consuming and nerve-racking experience.  Whether you are a solopreneur, have a business partner or are part of a group forming a start-up, you are going to have many choices and decisions to make.  One of the first business decisions you will confront, once you have committed to […]

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The Series LLC for Real Estate Deals

This is the second article we have authored about the Indiana Series LLC, which remains a relatively new business structure, having just become available on January 1, 2017. While the rules, regulations, processes and law on this new business model are incomplete and not yet fully decided, the law governing the Series LLC is developing […]

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Our Virtual Law Office

Sometimes, you just need an Indiana legal form, without a lawyer’s help. IndianaVirtualLaw is the website name for the virtual law offices of Griffith Law Group LLC, an Indiana law firm.  Through our Virtual Law Office, our law firm provides cost-effective and efficient, limited legal services pertaining to Indiana, Immigration, and federal Trademark Law.   Limited […]

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Is Indiana the Best State in Which to Form my Business?

A couple times each month, we are asked by a client whether it is better to form a Delaware corporation, or a Nevada LLC, rather than an Indiana entity.  Here is a common Q & A we experience when helping a client chose a state in which to form a new business entity. CLIENT:   I […]

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Sue For Blood, Settle For Money

Cost Effective Legal Representation The GRIFFITH LAW GROUP LLC recently rejected a client representation, because we could not deliver a cost-effective result for the potential client. The potential client (We will call him John in this article.) had a dispute with a neighbor over a very small strip of land, three inches to be precise. […]

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Attorney’s Fees: The American Rule

Generally, each party to a dispute must bear his, her or its own litigation expenses. In other words, each party pays his or her own attorneys’ and expert witness fees, and the other costs of a lawsuit. The winner does not get to recover those fees from the loser. This system is known as the […]

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The $1500 Small Claims Rule

Indiana Small Claims Courts have limited jurisdiction.  Essentially, small claims are cases involving only landlord-tenant matters and other purely monetary disputes, none of which may exceed $6,000 in damages being sought.  In Marion County, a plaintiff can recover attorneys’ fees, interest and costs beyond the $6,000. There is another rule that significantly impacts property managers […]

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