When entering a new business with partners, it is important to consider what will happen if one partner decides to leave the enterprise. When a partner intends to leave, they still have their stake in owning the company. A buyout agreement is an arrangement for the remaining partner(s) to purchase the portion of the business that the departing partner will be leaving.
A Minnesota business buyout agreements lawyer can help with this important component of business formation. Whatever stage of creating this contract you are at, a local business buy-sell contracts lawyer could provide counsel on the best strategies for creating a resilient business.
Reasons To Create Buyout Agreements for Minnesota Businesses
Buyout agreements eliminate uncertainty from when a partner leaves a business, choosing to renounce their involvement, guidance, and ownership. Most people associate buyout agreements with partnerships, however any business entity (corporations and LLCs) can also take advantage of such agreements.
There are a variety of normal, and irregular, instances that may cause a partner to withdraw from their business. The most common reasons are situations such as bankruptcy, divorce, and retirement. In bankruptcy, a partner may need to sell their interest in the enterprise to pay outstanding debts. In divorce, a divorce settlement may mean an ex-spouse receives all or some controlling interest in the business. In retirement, a partner may wish to relinquish interest. Regardless of the reason, significant changes in ownership and leadership can throw a business into chaos unless a buyout agreement is in place. A buyout agreement could help protect the remaining business partners from financial or legal hardships should any of these events take place.
Common Provisions of Buyout Agreements
Although every buyout agreement depends on the exact needs of a business and their unique situation, most buyout agreements contain similar provisions.
Can a departing member force the other members to buy him/her out?
One concern that any partner leaving a business is they are unable to sell off their share of the business. Partners who remain may be concerned that the leaving partner will sell their share to someone the remaining partners don’t want to work with. A provision forcing the buyout by remaining members might protect both partners from this uncomfortable issue.
Who can buy a departing partner’s share of a business?
Parties may not want to be forced into purchasing a leaving parties’ portion but may still wish to limit who the business interest may be sold to. A provision in the agreement drafted by a Bloomington business buyout lawyer could specify how a partner’s successor will be chosen. This may include requirements of certain business experience or allowing for the remaining partners to veto a prospective buyer.
How is the price set for a partner’s interest?
Selling price can be an area of tense negotiation, potentially leading to conflict. A well written buyout agreement could address price well in advance when all parties are entering business together. This provision could determine price at the time of buyout by specifying accepted accounting methods and providing for third parties who will determine price.
Find out what a Minnesota Business Buyout Agreement Lawyer Can Do for You
Planning for the unexpected is difficult and thinking about such a drastic yet far-off change in your business’s future may seem absurd, but a buyout agreement could provide certainty for entrepreneurs. A Bloomington business buyout agreement lawyer could help you with every step of the process, from answering your questions about your options to drafting an agreement all parties can agree to. Call today to start working on these arrangements for your business.