How a Buyout Agreement Can Help You Avoid a Partnership Dispute
The sudden loss of a partner—whether because of sudden death/disability or unexpected retirement—can cause serious problems for a business. During this transitional period, the risk of dispute is especially high. A type of contract called a ‘buyout agreement’ or ‘buy/sell agreement’ can provide much needed clarity and protection. Here, our West Palm Beach partnership dispute attorney explains how buyout agreements can help prevent partnership disputes.
What is a Buyout Agreement?
As defined by Cornell Law School, a buyout agreement (buy/sell agreement) is a binding contract that determines “what happens to an individual’s ownership interest when that individual withdraws from the business, dies or becomes disabled.” In other words, a buyout agreement pre-determines what will happen to the departing partner’s ownership stake in the business. These types of agreements are especially important for partnerships and other types of closely-held corporations.
Why are Buy/Sell Agreements So Important for Partnerships?
Similar to closely held corporations, business partnerships face a significant problem. These types of businesses are notoriously difficult to value and sell on the open market. When a partner is forced to leave the business or unexpected opt-outs, it can be very difficult to figure out what to do with their stake in the company. Proper planning helps to alleviate this problem.
Buyout Agreements Can Be Structured to Meet the Needs of the Partnership
There is no one correct way to craft a buyout agreement. The fundamental goal of a buy/sell agreement is to avoid internal disputes and ensure a smooth transition no matter what might happen in the future. In most cases, a buyout agreement will give the other business partners the first opportunity to buy up any outstanding share.
An effective buy/sell agreement should be funded. The last thing you want is for your partnership to run into problems during the transition due to inadequate liquidity. Business partners may want to consider purchasing some form of life & disability insurance to ensure that they have the funds to purchase shares.
It is Not Too Late for a Buy/Sell Agreement
Do you already own and operate a business partnership in South Florida? Whether you are a member of a general partnership, limited partnership (LP), or limited liability partnership (LLP), you could benefit from the clarity and protection provided by a buy/sell agreement. It is never too late for you and your business partners to put a buyout agreement in place. If you have questions about what terms to put in a buyout agreement, an experienced Florida partnership law attorney can help.
Call Our South Florida Partnership Lawyers for Legal Guidance
At Pike & Lustig, LLP, our Florida partnership law attorneys are devoted to helping clients find reliable, effective solutions. If you have any questions about buyout agreements and partnership disputes, we are here to help. Call us now for a strictly confidential review and evaluation of your case. With our office locations in West Palm Beach, Wellington and Miami, we represent business owners and entrepreneurs throughout Southeastern Florida.