Effective Succession Planning Through Buy-Sell Agreements

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Buy-sell agreements are essential legal contracts that dictate the transfer and sale of ownership interests in a business in the event of triggering events such as the death, disability, or retirement of an owner. For RIAs, these agreements play a crucial role in establishing a framework for ownership transition, ensuring the continuity and stability of their firms. This article provides an overview of RIA buy-sell agreements, addressing what they are, why they’re important, their key elements, and common mistakes RIAs make with respect to those agreements.

What Is an RIA buy-sell agreement?

An RIA buy-sell agreement is binding and outlines the terms for buying and selling ownership interests in the advisory business. Its main purpose is to establish a clear framework for ownership transition when certain triggering events occur. These events typically include the death, disability, retirement, voluntary departure, or expulsion of a partner or owner.

RIA buy-sell agreements take several forms. For some RIAs, they are specific provisions in the operating agreement or partnership agreement of the RIA that outline what happens to the equity ownership of an owner who dies, becomes disabled, retires, voluntarily withdraws, or is expelled from the firm. For others, they are stand-alone contingency agreements whereby the buyer agrees to purchase from the seller the seller’s ownership interest in the RIAA, but only in the event of the seller’s death, disability, or retirement.