March 1, 2010

Ms. Kelly Klient
111 First Street
Cityville, Texas 77777

Dear Kelly:

We recommend that businesses with more than one owner maintain a written buy/sell agreement specifying what happens in the event of an owner’s retirement, disability, divorce, bankruptcy, or death. A buy/sell agreement is a contract between the owners (or the owners and the business entity itself) that establishes rules and restrictions applicable to changes in ownership. Events that trigger a buy/sell agreement are specified by the owners in the contract and generally include any circumstance that might cause an owner to dispose of an ownership interest.

The typical buy/sell agreement provides that an owner’s interest in the business will be sold (or at least offered for sale) at a specified price to the other owners and/or to the business entity itself upon the occurrence of specified events. Common methods for determining the purchase price under a buy/sell agreement include (1) establishing a fixed price in the contract, (2) requiring an independent appraisal, or (3) specifying a formula such as a percentage of book value.

A buy/sell agreement prevents unwanted persons from becoming members of the ownership group and ensures a ready market for closely held ownership interests. In the case of an owner’s death, it also provides liquidity to a deceased owner’s family and assures any co-owners that they will have the option of continuing the business without interference from the family of the deceased owner. In some cases, buy/sell agreements also offer estate planning benefits by establishing a value for the business.

The best time to establish a buy/sell agreement is now, before a problem develops. If you currently do not have a buy/sell agreement for your business, I would be happy to meet with you to discuss the merits of having one and to help you and your attorney in formulating the terms of the agreement. If you already have a buy/sell agreement in place, I suggest that we review it together to ensure that its provisions are still relevant to your current situation. I’ll call you next week to discuss this matter further.

Best Regards,

(Practitioner or client contact person)