Buy Sell Agreement
In a LLC, or any business, it is best to plan for the future. Members in an Arizona LLC that is closely held often prefer to structure the conditions of when a member may sell their interest, purchase another's interest, put rules around if a member's interest is transferred (think divorce, court order, or bankruptcy sale), successor planning, or a triggering event for bad conduct that forces a sale of a members interest.
Without a buy sell agreement there may be limited ability for the remaining member(s) to ensure a new buyer shares the vision and goals of the company if a member wants to sell to a third party. Alternatively, if a member wants to withdraw there could be a financial impact on the other members.
A buy sell agreement can be created, and often is, after a business is formed. Unplanned events in life can happen though such as unexpected death, ill health, or a fall out with a business partner. These events can leave a LLC unprepared or forced down a path the members would not have originally wanted. Therefore, the best time to setup a buy sell agreement is now.
An attorney prepared buy sell agreement can be customized to address a number of elements including:
Valuation: If a partner wants out how will his or her membership be valued? A valuation should consist of the asset, liabilities, and future revenue but also can include intangibles such as trademarks, trade secrets, patents, and goodwill. We can discuss an assortment of commonly used methods to determine the valuation of the business in a number of situations likely to be encountered.
Spouse or heir taking an interest: Do you want to allow children or successors of a member take over their interest in the event of a death? What about in a divorce if a spouse were to take a half interest for example? Do you want to be in business with one of these parties? A buy sell agreement can address such situations.
Eligible Buyers: A business often has a culture and values. A buy sell can ensure the members are able to veto a potential buyer who simply wants to break up and sell the business.
Financing: Cash flow is very important to a business. A forced sale by a member to the LLC or other members could cause considerable hardship and a structured sale to ensure a payoff with some cash up front and the remaining financed over time can be setup in a buy sell agreement from the beginning so all parties know the structure should they want out.
These are a sampling of some important items a buy sell agreement can address. A licensed attorney can assist you with a custom buy sell agreement that can help you know the expectations if a member exits the business. Don't forget that when members in an LLC disagree a protracted and expensive litigation can ensue. Thus, many business want to preserving the value of the business and money you have earned.
Plan for unforeseen events and the future today by working with Thunderbird Law on a custom buy-sell agreement.
Any reference to law or statute on this page was referencing the law as of October 2020. The law may have changed since this posting.