Do you Have Buy Out Agreement?
A Buy Out Agreement also called a buy-sell or Business Continuity agreement is a contractual agreement between two co-owners of a company determining a way to handle the departure of a member. It is an important agreement in LLC ownership process as it clearly establishes the member’s interest.
Buy Out Agreement is necessary since at some later date any member could leave the company. If there is no proper Agreement, Laws of the state may enforce the dissolution of the company. A buyout agreement provides clear-cut guidelines for approaching changes in ownership preventing unsolicited buyers from obtaining an interest in the company.The buyout agreement is needed for every company except those that have a single owner, married and Parent/Child owners. These agreements enable one to transfer the ownership smoothly, guides in creating value for ownership interest and states in terms of payment for a member leaving the company. It also provides rules to purchase out leaving member interest.
The buyout agreement could be a stand-alone agreement or may form part of the operating agreement. The Buyout may be necessitated due to death of a member, bankruptcy, retirement, incapacity etc.This agreement gives the ownership right to purchase interests of a member wishing to leave or even to force a sale of interest for the benefit of the company or due to change in the ownership of the company. It is an agreement which protects the ownership rights to carry on their business without any fear of losing our interest over the company.