Just like having a blueprint is essential before you can start construction on a building, having a strong buy-sell agreement for your construction business is important before you can establish yourself in the industry. In the construction industry, a buy-sell agreement is comprised of details of how ownership transitions will take place. The owners of the company describe in the agreement how power will change hands if certain events take place. For this purpose, you will need to go through a process to determine the possibilities of what is most likely to happen.

There are a lot of different reasons for which a transfer of power may be necessary, and these could be under both good and bad circumstances. Circumstances that lead to ownership transitions are called “triggering events.” If you do not pay enough attention to your buy-sell agreement before starting a business, you may be faced with unanticipated consequences later. If you are not the sole owner of your business and your partner files for bankruptcy, a part of your company will be owned by the bank. There are other such situations that could arise which will ultimately result in a conflict if you do not pay attention to your buy-sell agreement.

Even though there are a lot of consequences, many business owners fail to prioritize having a buy-sell agreement. Research suggests that three out of four construction businesses do not have documented succession plans for their business. If there are no succession plans in place, these businesses will lose value upon the death of their owner due to lack of proper authority.

Types of Buy-Sell Agreements in the Construction Industry

In the construction industry, two types of buy-sell agreements are common. Those are cross purchase agreements and redemption or liquidation agreements. No matter what the situation, there are certain steps that business owners can take to ensure the future of their business.