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Avoid unclear language in your buy-sell agreement

On Behalf of | Dec 22, 2021 | Business Law

When you work with a business partner, you should know how either of you may make your departure from the business. With a well-defined buy-sell agreement, you and your partner can arrange the details for how each of you may buy out the other partner’s interest and keep the business operating.

However, you might run into problems if your buy-sell agreement is unclear or ambiguous in its terms. Using the wrong word or phrase at a crucial point in the agreement could lead to disagreements and possibly litigation with your partner.

An example of unclear language

An article published in the CPA Journal explains that some terms in a business contract, though they may appear similar, can actually have very different meanings. Any buy-sell agreement should use terms consistently to avoid confusion.

For example, a buy-sell agreement may discuss how to appraise the value of the business prior to buying out a partner. The agreement may address how to determine the fair value of the business. Shortly thereafter, the document talks about the fair market value of the company. However, these two terms are not the same. In fact, a fair market value of a business may differ from fair value by millions of dollars.

Possible causes of ambiguous language

Given the stakes involved in making a buy-sell agreement, you might wonder how unclear language can slip into such a crucial document. Sometimes a business owner personally drafts the agreement. Generally, lawyers draft and review buy-sell agreements. A business owner who composes one without assistance usually wants to save money on attorney fees.

Unfortunately, a poorly drafted buy-sell agreement may end up costing you much more money if it goes to litigation. If the case drags out, the legal costs may rack up expenses hundreds of times over what you would have paid in legal consultation. This is why you should consider your options carefully so you may avoid a costly outcome.