When two or more individuals own a business, whether through a corporation, partnership or limited liability company, it is advisable that they enter into a buy-sell agreement. Such an agreement provides for the purchase and sale of an owner’s interest in the business upon the occurrence of certain future events, such as death, disability, termination of employment, retirement or withdrawal from the business.
As important as it is to enter into a buy-sell agreement, it is as important to follow it. When it “sits on the shelf,” as it often does, or when it is ignored, as it sometimes is, problems can arise.
Recently, Donald Fagen, the sole surviving member of the band Steely Dan, brought suit against the estate of Walter Becker to enforce the buy-sell agreement which band members executed in 1972 before the release of their debut album. Fagen’s long-time bandmate and original founding member, Becker, died on September 3, 2017. Four days later, personal representatives of his estate advised Fagen that, in their view, the buy-sell agreement was unenforceable.
The buy-sell agreement, which was fairly standard, provided that upon the death of a member, the executor of his estate is required to sell back to the band the deceased member’s stock. The agreement further provided that the purchase price was to be “book value” as opposed to “market value.” Fagen alleges that despite the significant passage of time, and the periodic substitution of band members, Becker had acknowledged the enforceability of the buy-sell agreement, including the purchase price provisions. Fagen seeks to enforce the buy-sell agreement, control of the use of the name “Steely Dan,” and control of the website “steelydan.com.”
Much like reviewing a will or estate planning documents, on occasion, since, as time goes by, circumstances may change, it makes sense to review a buy-sell agreement to make sure its intended purpose is being met. Let us know if we can help.