Buyout Agreement

At some point of time when co-owner of your company hopes to retire early or wants to change walks of life past middle age, it is usual for the owner to retire, move on or simply stop working for your company anymore. A buyout agreement can both protect the company's continuity and accommodate the leaving owner's exit strategy legally.

Options to purchase a leaving owner's interest

Usually an owner who wants to depart will also want to carry out his share of cash asset with him, by having the remaining owners buy out his interest. Other cases are where an active owner, contrary to a passive investor, who wants to retire or stop working for the company will want to retain all or portion of his ownership stake. 

But sometimes this could be exactly what the remaining owners want because this will allow them to keep the leaving owner's capital in the business and keep going, therefore they don't have to raise cash for company buyout. At the same time, other situations can arise where the current owners won't like this arrangement due to the fact that departing owners becoming passive investor recapping the benefits of their continuing hard work and growing company's revenue.

buyout agreement example

<Buyout agreement example>

You would need to consider possible outcome if a departing owner stops working for your business under any circumstances and is causing a trouble for management. At first the situation looks good, but there might be a tension arising between the active owners and passive ones. Someone is working very hard and long hours to build up the company, while others are interested in the share of profits with no such hard endeavors.

Or your business partner suddenly quits it and moved to another state for a new startup company. If you had not prepared ownership buyout agreement in advance, your partnership may have to be dissolved and you should divide any physical assets and profits among the partners by your state law. Then you are facing an option of buying out departing partner’s ownership interest.

In such cases, the best solution would be to have the departing owners sell the ownership interest. Another word, the continuing owners will have the option to purchase leaving owner's interest. This way there would be no more confusion or tension between leaving and remaining parties. Such a provision will not obligate the company or remaining owners to purchase the interest, but it just give them an option to decide what to do in the future. They can buy all or only half of the interest if they wish. This provision is called "option to purchase" in buyout agreement and it describes the continuing owner's option to purchase all or part of the ownership interest within preset timeframe.

Buyout agreement is very important business legal forms when operating a company or small business. As a business owner, you would need to get familiar with new regulations and daily operations as well as legal process that would require you to take steps in any states. You also want to know how to set buyout price in your agreement.

If you are planning to prepare buyout agreement for your company, make sure that you have written legal forms signed by you. Any signed document is legally binding, so consult with your own accountant or lawyer when in doubt. For easy downloadable forms, go online and search for Free Legal Forms and you should be able to find many general legal forms and documents such as bill of sale, power of attorney and corporation legal forms.