An often neglected agreement in the formation of a small business is the buy-sell agreement. Every business that has multiple owners should consider having a buy-sell agreement. Such an agreement covers how an owner can sell shares and how to value those shares. Further, a good buy-sell agreement sets forth what happens in the event of death, disability, retirement, divorce, bankruptcy or other considerations.
Effective buy-sell agreements will generally require a right of first refusal. This means if one owner finds an outside buyer for his shares the owner must first offer those shares to the other existing owners. This protects the owners from suddenly running the business with someone they did not intend to have as a partner.
The time to enter into a buy-sell agreement is at the beginning of the business relationship when everyone is excited and getting along. It is often very difficult to negotiate a deal when something has gone wrong. Without a buy-sell agreement, owners may end up in court and the business may suffer. So in the formation of an Iowa business remember to include the buy-sell agreement.