At times, it becomes necessary to buy out a partner's interest. The methods available for purchasing other shareholder's interests are known as co-owner transfers. This discussion covers acquiring both equal and unequal partner interests. In the absence of a written ownership agreement, a minority interest holder is at the mercy of the controlling shareholder. Further, 50/50 partners without a buy/sell agreement will not have the tools to settle serious disputes. This chapter discusses buy/sell agreements, first refusal rights, and other techniques available to transfer shareholder interests to partners.
A buy/sell agreement among the owners of a business fixes the owners’ rights with respect to each other and the business. A buy/sell agreement is important to the owners of a private business because it can serve the dual purposes of restricting the transfer of stock to undesirable parties and providing a ready market for the stock sale. If the agreement provides a practical framework for owners, it can resolve a number of issues that might otherwise lead to later conflict. The primary purposes of buy/sell agreements are to:
- Transition business ownership while continuing the operation of the business.
- Create liquidity and a market to sell a business interest.
- Determine the triggering events that will activate the buy/sell.
- Set a price, or formula for determining price, for the business interest.
- Protect against unwanted new partners. ...