The simplest partnership buyouts or business divorces unfold between partners who have already established clear terms for the upcoming transfer of ownership. A buy-sell agreement is a common component of a partnership contract.
Partners may have established guidelines for business valuation and the appropriate compensation of the partner exiting the organization. Technically, buy-sell agreements are legal and valid as soon as partners execute them during the business formation process. However, they often only affect ownership after a specific triggering event occurs.
What specific scenarios may warrant one partner invoking a buy-sell agreement to acquire the other’s interest in their shared company?
Most buy-sell agreements have similar standards
While various aspects of buy-sell agreements need to reflect the unique business created, the triggering events that allow one partner to acquire the other’s interest in the company are often roughly the same. The most common triggering events include:
- The death of a partner
- The decision to retire
- One partner becoming incapacitated
- A voluntary exit from the company to pursue another business opportunity or job
- An involuntary exit triggered by a breach of fiduciary duty
A partner hoping to purchase the company using a buy-sell agreement generally needs to follow the terms outlined in the contract. They also need documentation affirming that a triggering event has occurred.
Working with a lawyer familiar with business buyouts or partnership breakups can help partners navigate a potentially contentious process as calmly and effectively as possible. A review of a buy-sell agreement can help people determine if qualifying events have occurred and if they are in a position to buy out a partner.
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