Business partners would be wise to explore buyout agreements or transfer restrictions that spell out what occurs in the event a partnership or venture fails (e.g., death, irreconcilable differences, etc.), or if one/some partners would like to transfer their interest during the life of the business. The best time to put these agreements in place is often at the beginning of the venture/partnership. Breakups can be hard. But they become much more of a nightmare in the absence of pre-ordained buyout/transfer procedures if the partners are already well into the venture. 

The long-term viability of any business must account for buyout situations, often via a written, detailed buyout agreement.  Most businesses and partners are familiar with partnership, operating, and shareholder agreements. These often set out the responsibilities and expectations of the parties. A good partnership agreement will work to maximize protection for a business, the owners, and the assets. It will also provide a clear and effective dispute resolution mechanism in the event that there are disputes amongst the parties. 

Despite putting together partnership agreements, partners often forgo agreeing on buyout procedures or entering into a separate buyout agreement to address transfer concerns. A buyout agreement, or a buy-sell agreement, is a binding contract between two partners that addresses what the partners must do if they want to or otherwise must sell or transfer their ownership. 

Though not legally required, most businesses will benefit from the security a buyout agreement provide. Multi-owner companies should consider including this contract in the case a co-owner intends to sell interest to an unwanted party. Single member LLCs, or sole proprietorships, also benefit greatly from buyout agreements. While outlining a process for a third-party purchase, it also allows for a business to continue if the owner passes away, becomes incapacitated, or retires. If a buyout agreement is not included, business could end up in court, or could be dissolved by the state. 

The experienced business transaction attorneys at OVB Law & Consulting, S.C. can help navigate the terms and conditions of a contract, ensure that interest are protected, and negotiate terms if necessary.

“INDIVIDUALLY WE ARE ONE DROP, BUT TOGETHER WE ARE AN OCEAN.”