1. Introduction: Protect Your Business Before It’s Too Late

As a business owner in Singapore, you’re focused on growth, operations, and profitability. But have you considered what happens when an owner dies, becomes incapacitated, or decides to exit the business? Without a clear legal framework in place, these events can disrupt operations, cause conflict among stakeholders, and threaten your company’s future.

A buy-sell agreement is a legally binding contract that outlines what happens to an owner’s shares when such triggering events occur. It ensures business continuity, protects relationships, and preserves value.

In this article, we break down the importance of buy-sell agreements, key structures to consider, and how to ensure yours is tailored to your business goals. If you need immediate legal advice on this topic, feel free to contact me, Waltson Tan, at waltson.tan@28falconlaw.com.

2. What Is a Buy-Sell Agreement

A buy-sell agreement (also known as a buyout agreement) is a key tool for succession planning in Singapore businesses. It sets out the process for ownership transfer when events like death, retirement, disability, or exit occur.

It ensures:

• A smooth transition of ownership
• Minimised disputes between stakeholders
• Fair valuation of the departing owner’s interest
• Clear terms of purchase for the remaining owners

3. Types of Buy-Sell Agreements in Singapore

Choosing the right structure is essential. The two most common forms are:

(a) Cross-Purchase Agreement

Each business partner agrees to purchase the departing owner’s shares personally. Best suited for:

• Small businesses
• Close-knit partnerships
• Owners who want to retain control among active stakeholders

(b) Entity-Purchase Agreement

The business entity itself buys back the exiting owner’s shares. Ideal for:

• Larger companies
• Businesses with multiple shareholders
• Simplifying administrative processes

4. Key Clauses to Include in Your Buy-Sell Agreement

To ensure enforceability and effectiveness, your agreement should address:

(a) Triggering Events

Clearly define what events activate the agreement, such as:

• Death of an owner
• Incapacity or disability
• Voluntary retirement or resignation

(b) Ownership Transfer Terms

Specify:

• Who can buy the shares (e.g., existing owners only)
• Right of first refusal provisions
• Transfer restrictions to protect company control

(c) Business Valuation Methods

Agree on how the business or shares will be valued:

• Fixed valuation formula
• Periodic independent valuations
• Third-party appraisals to prevent disputes

(d) Life and Disability Insurance

To fund the buyout and preserve liquidity:

• Cross-purchase: owners hold policies on each other
• Entity-purchase: company holds policies on owners
• Consider disability cover to address incapacity or permanent disability scenarios

5. Benefits of a Buy-Sell Agreement for Business Owners

A well-drafted buy-sell agreement:

• Prevents internal disputes
• Maintains continuity during ownership transitions
• Protects heirs and provides fair compensation
• Secures company liquidity through insurance funding
• Enhances business valuation and investor confidence

For businesses in Singapore, such an agreement is not just a safeguard. It is a strategic investment in your long-term success.

6. Don’t Wait for a Crisis: Act Now

Unplanned exits or disputes can severely damage a company’s stability. A buy-sell agreement provides legal clarity, protects your business legacy, and offers peace of mind for all involved.

Whether you’re a startup founder or managing a family business, we recommend working with experienced legal counsel to:

• Identify potential risks
• Draft enforceable clauses
• Align the agreement with your business structure and goals

7. Talk to a Singapore Corporate Lawyer Who Understands Business

At 28 Falcon Law, we specialise in helping business owners protect their interests through strategic legal solutions. We will guide you through the drafting of a comprehensive, enforceable buy-sell agreement tailored to your business.

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The author, Waltson Tan, is a corporate lawyer based in Singapore. He is qualified as an advocate and solicitor in Singapore and has more than eight years of post-qualification experience, including advising clients of top international and local law firms on corporate law and employment law-related matters.

Waltson also practises in the areas of mergers and acquisitions, private equity, joint ventures, investment funds, and other general corporate and commercial transactions. He has also represented numerous leading multinational organisations on a broad spectrum of corporate, regulatory, cross-border restructuring and employment matters.

Prior to joining the firm, Waltson practised at some of the top law firms in Singapore and thereafter, at a leading international law firm, which was the second largest law firm in the United States and one of the ten largest in the world.

If you require further information and/or expert guidance on the above or any other area of law, you may wish to contact the author of the article, whose details are as follows:

 

 

Waltson Tan Director +65 8079 0028 waltson.tan@28falconlaw.com

Office address: 101A Upper Cross Street #13-11, People’s Park Centre Singapore 058358