To convey the importance of sales contracts, we spoke with small entrepreneurs like you. Bryan Clayton, CEO of GreenPal, an Uber-style lawn care service, said he felt a little weird when he first signed a sales deal for his company, but later saved his business. If you have business partners, a sales contract is especially important because it describes the rights and obligations of each owner with regard to business continuity. This gives you and your business partners the opportunity to discuss and answer questions such as: What would you do if you and your partner had an intractable conflict and one of you decided to leave the business? What if your co-owner died suddenly and her spouse wanted to enter the store? In the event that an owner decides to retire, a sales contract may provide that the remaining owners may acquire their share by paying fair compensation. The sales contract agreement should indicate the retirement age and define “retirement”. What happens, for example, if a business owner wants to quit full-time work but continue advising the company part-time – would this be considered a “retirement”? In the agreement, a company can choose to grant a lower compensation for early retirement and higher remuneration if a business owner has passed retirement age. The first thing your sales contract should address is to go into effect. We advise you to meet with your business partners shortly after setting up your business and discuss what would happen during each of these triggering events. It is better to discuss these things lucidly now, rather than later, when time is running out or tensions are high. Triggering events can be the following: these agreements are often compared to marriage contracts for companies. They determine what happens to the ownership of the business when one of the owners (or individual entrepreneurs) undergoes life changes that may influence the continuation of the business itself. Life changes can range from divorce or bankruptcy to death.
The buy-sell agreement protects the business and the remaining owners from the effects of an owner`s personal life that can impact the business. Sometimes an owner wants to voluntarily leave the business to pursue other possibilities, or wants to sell part of their current property. A sales contract can set limits on when an owner can pay and to whom to preserve the integrity of the business. A sales contract is an essential part of planning for the future of your small business,” says Mark Teitelbaum, Vice President, Advanced Markets at AXA Distributors. Each company is unique in structure. A company with multiple co-founders would have a more complicated buyout agreement. While a sole proprietorship is often easier to design and execute. This list is intended to give you a general overview of the clauses and scenarios that should be considered in most buy-sell agreements.