Management Buyout Agreement

A management buyout agreement helps corporate personnel invest in their company, becoming shareholders and gradually taking control of the firm. The agreement also allows the workforce of a financially distressed company to prevent a bankruptcy.

Identification

A management buyout agreement is a contract in which a company's middle and top management consent to purchase equity stakes in the company, according to an article published in Strategic Finance. The agreement allows corporate managers to buy shares at a reduced price, or discount.

Incentives

Corporate personnel high in the hierarchy have incentives to sign buyout agreements because they generally have a deeper knowledge of a company's profit potential. Managers may also engage in buyout talks if they believe that current owners do not chart an appropriate course for the company's long-term operating success.

Features

A typical management buyout agreement includes conditions under which corporate owners consent to sell equity shares to personnel, according to Wood Communications, an enterprise telecommunication solutions provider. The conditions include share sale price and equity ownership percentage.

References

• PR Log: Management Buy Out Drives Forward Growth of Wood Communications
• All Business: How to Lead Your Management Buyout