Buy-Sell Agreements and Cigar Industry Concerns

In the cigar industry, businesses often live or die based on close partnerships and specialized knowledge that owners gain over decades of experience. If an integral member of your business were to suddenly retire or pass away, do you have proper processes in place to smooth over the transition process?

Cigar Business Buy-Sell Agreements

A buy-sell agreement (BSA) is a contract that outlines how a partner’s share of a business will be reassigned if they leave it, whether due to death, disability, retirement, or other specified event. The primary business aims of a BSA are to simplify the transfer of ownership interests, prevent disputes, and protect the business’ future.

A legally-binding BSA has three components:

1. Triggering Event: Clearly defined events that activate the agreement, such as the death, disability, retirement, or bankruptcy of a partner.
2. Valuation Method: Methods for valuing the business shares, such as a fixed price or calculated using a predetermined formula.
3. Funding Mechanism: The specifics of how the departing partner’s share purchase will be funded. Life insurance policies commonly provide immediate funds without straining the business’ cash flow.

Cigar Industry Concerns

When drafting a BSA for a cigar business, one of the primary concerns is maintaining family ownership and preserving the legacy of a family-run enterprise. Cigar businesses and family farms rooted in tradition must include provisions that allow remaining family members and shareholders the first right of refusal to purchase the departing member’s shares. Without this retention provision, there’s no guarantee that that control stays within the family.

Once you have these initial protections, your focus should turn to the other considerations unique to the cigar and tobacco industry. For example, agreements should address the owner’s need to meet the licensing and regulatory requirements set by the FDA, as well as protect existing intellectual property and business relationships during the transition.

Creating a BSA isn’t difficult when you work with experienced business attorneys, so don’t let the lack of a buy-sell agreement jeopardize your cigar business’s future. Venerable Law can help you draft an agreement that keeps your business stable and operational for years to come. Message us through our website or give us a call at 813-680-4530 to schedule a consultation.