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Does Your Business Need A Buyout Agreement?

Law Blog

When you and your partners start a business, the last thing you are thinking of is what happens when someone wants out of the arrangement. Unfortunately, there is a real possibility that someone will want to dissolve his or her partnership in the future. Therefore, it is important to create a buyout agreement. 

Why Is a Buyout Agreement Important? 

In the event that a partner wants to retire, resign, or sell his or her share in the company to another, the buyout agreement helps to set the terms for his or her exit. Without the agreement, there could be confusion regarding the division of the company and who is entitled to its shares. At some point, the disagreement could lead to court.  

The agreement can also settle an argument over whether or not another partner can buy an exiting partner's shares of the company. It can even include a provision that limits how much can be purchased and under which circumstances it would be possible to purchase more.  

A buyout agreement not only covers what happens when a partner leaves, but it can include provisions for what happens when a new partner joins the group. For instance, it can place restrictions on who can join the group so that someone you do not want to do business with is not added to the owners.  

What Should Be in the Agreement? 

Ideally, the agreement should be tailored to meet your business's specific needs. A general template found online is likely not good enough to account for all of your business's needs. If you and your partners are drafting the agreement yourselves, there are some details you should ensure are included.  

The agreement should include the company's names and its purpose. The purpose does not have to be too detailed because your business and its services and products could expand. Keeping this portion fairly non-specific allows for flexibility as your business grows.  

In addition to this, the agreement should discuss voluntary and involuntary exits from the business. For instance, what happens if one of the partners is acting irrationally and the others want him or her removed from the business?  

The agreement also needs to address what happens if the addition of a new partner is possible. Under what circumstances can a new partner be added? Will there be a process to allow it? 

To ensure that you and your partners have covered every possible legal situation that could occur, work with an attorney or law firm, like Souders Law Group, to create the buyout agreement. 


19 June 2017