Many Nevada LLC formation owners neglect to create buyout agreements, but they can be critical to harmonious LLC co-ownership. A buyout or buy/sell agreement states what must happen when after a Nevada LLC formation, an owner wants to leave the company, or, worse, departs after death, bankruptcy, or divorce.
Function of a Buyout or Buy/Sell Agreement
Contrary to widespread belief, buy/sell agreements are not about just buying and selling companies. They are binding contracts among co-owners of a business governing procedure when an owner wants a buyout or a new owner wants to buy in. To avoid misunderstanding over terminology, the phrase “buyout agreement” will refer to the document under discussion in this article.
A buyout agreement governs the following business decisions:
- Whether the remaining LLC owners can be required to buy the departing owner out,
- Whether anyone else can buy the departing owner’s share of the business,
- Whether there is a constant value for an LLC owner’s interest,
- Whether other events can trigger a buyout.
A buyout agreement among LLC owners is like a prenuptial agreement between spouses. If the union created by the Nevada LLC formation does not endure, the buyout agreement specifies in advance what happens to the business.
Typical events that trigger the buyout of an owner’s interest under a buyout agreement:
- An owner’s retirement or resignation,
- An outside offer to purchase an owner’s interest in the company,
- A divorce settlement by which an owner’s ex-spouse receives an ownership interest in the company,
- Enforcement a debt secured by an ownership interest,
- Personal bankruptcy of an owner, or
- Disability or incapacity of an owner.
The Need for Buyout Agreements
It’s a mistake to ignore the fact that sooner or later personal circumstances change. When they do, buyout agreements can help in several situations. Two general examples:
- An owner leaves. The odds are good that an owner will want to leave the LLC before others are ready to sell or close it. Without a buyout agreement, the LLC might dissolve automatically by operation of law when an owner leaves, forcing a sale and division of the business assets. Without a buyout agreement, if the remaining owners wish to continue the business there will be no rules governing whether and how to buy out departing owners. This shortcoming could cause serious personal and business discord, perhaps even court battles and the total loss of the Nevada LLC formation.
- An outsider wants to become a new owner. A buyout agreement governs who can buy an interest in the Nevada LLC formation and how. Without this provision, an owner could sell an interest to someone unacceptable to other owners.
Besides prevention of potential future problems, buyout agreements have the immediate benefit of motivating the LLC owners to talk about hopes and expectations for the business and put it on a sound planning track from the start.
Buyout Agreement Form
A buyout agreement can be part of the initial Nevada LLC formation or a separate standalone agreement. Once the business is underway, a corporate services attorney can work with the owners throughout the year to advise them on important decisions and to represent them in commercial transactions and in legal proceedings. From conducting shareholder meetings to preparing regulatory state or federal filings, corporate services attorneys make sure all LLC activities comply fully with federal, state, and local laws.
Contact a Corporate Services Attorney
As a business matures and grows, a corporate services attorney anticipates conflicts and proposes and negotiates solutions with vendors, customers, employees, and government bureaucrats. While in a perfect world a business can avoid conflicts completely, in the real world a skilled, experienced corporate services attorney finds effective solutions that save money, time, and aggravation. The Sutton Law Center PC assists businesses in every way important to their prosperity and success. To schedule an appointment with a knowledgeable corporate services attorney, call 775–824–0300 today.