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Articles and Tools to Help Entrepreneurs Understand, Plan and Structure Ownership and Succession Agreements
Kansas City, Mo., January, 4, 2006 — One of the most important, yet often overlooked, issues for entrepreneurs in businesses involving partnerships or multiple founders is planning for the smooth transition of ownership if one of the owners retires, becomes disabled, dies or leaves for any other reason. Kauffman eVenturingTM (www.eVenturing.org), a Web site for growth-oriented entrepreneurs launched by the Ewing Marion Kauffman Foundation in November, features a new collection of articles, tools and templates on why and how to put an effective buy-sell agreement in place. The buy-sell agreement is the legal document that specifies the redistribution of ownership when a triggering event occurs.
The Kauffman eVenturing collection underlines the importance of the "business pre-nups" and provides entrepreneurs with practical guidance and tools for constructing effective buy-sell agreements that enable them to avoid difficult and costly complications after the fact. It includes a number of articles by entrepreneurs who have lived through the process of creating their own buy-sell agreements, and know first-hand what works and what doesn't. Sample buy-sell agreement templates are also posted on Kauffman eVenturing.
"By agreeing on the terms and conditions of ownership and succession early on in the evolution of an enterprise, co-owners can keep control in their hands should a partner leave and avoid costly and time-consuming control claims," said Judith Cone, vice president of the Kauffman Foundation's entrepreneurship initiatives. "Often, the ability of the business to survive depends on how clearly the buy-sell agreement spells out succession."
The Kauffman eVenturing collection touches upon a broad range of issues including a basic understanding of what a buy-sell agreement needs to cover, the three main types of buy-sell agreements and different methods to fund the execution of such an agreement in the event one partner leaves. Buy-sell agreements cover a myriad of critical and complex issues, such as: What formula will be used to determine the fair value of shares to provide a surviving spouse or estate with payment? Will the agreement be funded by a 'key-man' insurance policy? Will the same rules apply if a dispute such as a breach of a non-compete clause (rather than death or disability) leads to a co-owner's departure? Following are highlights of this month's Kauffman eVenturing collection on buy-sell agreements:
- "An Overview to Buy-Sell Agreements" by Andrew J. Sherman, Esq., a partner with Dickstein Shapiro Morin & Oshinsky LLP and a general counsel to Entrepreneurs' Organization (EO), defines buy-sell agreements and their advantages, and identifies the three basic types of agreements.
- "High Growth and the Buy-Sell" in which James Kenefick shares his difficulties in negotiating a buy-sell agreement after his business had become successful, leading to his resolve to put more sophisticated agreements in place from the outset for his future entrepreneurial ventures.
- "Enacting the Buy-Sell" by Michelle Kort, owner of As You Wish Pottery, outlines how a well-constructed buy-sell agreement enabled her to smoothly transition from a partnership to full ownership.
- "Retaining an Attorney for the Buy-Sell" by Jeremy Johnson of Too Faced Cosmetics, who with his attorney shows how his final buy-sell agreement allows his company to continue as a viable concern should some unforeseen event occur.
- "Establishing the Buy-Sell Midstream," by Patrick O'Flaherty of Nevada Lighting, shares his experience dealing with conflicts during the buy-out of a senior partner that motivated the remaining owners to eventually sign a buy-sell agreement after careful consideration of the issues involved.
- "Key Buy-Sell Issues for Rapid Expansion" by Andrew J. Sherman, Esq., outlines the advantages of periodically updating a buy-sell agreement, key issues that an agreement needs to address and the various types of agreements .
- "Maximizing Your Buy-Sell Agreement" by Christopher Kramer, managing director of Strategic Equity Group, recommends that entrepreneurs update their existing agreements annually, drawing distinctions between ownership and day-to-day employment, detail very specifically what happens in the event of different kinds triggering events like death, disability or voluntary departure and consider how shares should be valued under various scenarios.
"This collection is a valuable resource for growth-oriented entrepreneurs who want to be prepared for all kinds of contingencies," said Stefanie Weaver, manager of Kauffman's entrepreneur learning programs. "While it's very difficult to contemplate exit strategies when you're busy growing a business, a well-crafted buy-sell agreement provides peace-of-mind for everyone involved in the business."
The Kauffman eVenturing site is dedicated to serving the needs of growth-oriented entrepreneurs. Every month, a new collection of articles on key themes of interest to entrepreneurs - such as finance and accounting, people and human resources, sales and marketing, products and services, operations and the entrepreneur (e.g, strategy, culture, leadership) - will be featured on the site. The collections will contain a mix of original articles and a carefully reviewed aggregation of some of the 'best of the best' existing Web material on the topic at hand.
To read the full collection on buy-sell agreements, please visit Kauffman eVenturing at www.eVenturing.org
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About The Kauffman Foundation: The Ewing Marion Kauffman Foundation of Kansas City is a private, nonpartisan foundation that works with partners to advance entrepreneurship in America and improve the education of children and youth. The Kauffman Foundation was established in the mid-1960s by the late entrepreneur and philanthropist Ewing Marion Kauffman.