How to Write a Buyout Agreement

When you enter into a business arrangement, one of the last things you may be thinking about is selling your share of the business at some point in the future. However, creating a buyout agreement at this time is important so that you can outline the terms of your exit if you decide to get out of the business at some point. A buy-sell agreement will help you avoid any problems when you opt to sell your portion of ownership in the business.

Instructions

1. List the potential triggering events for a buyout. In the agreement, you need to specify exactly which events will trigger the buyout process. For example, death or retirement could trigger the buyout process. You need to spell out the scenarios clearly in the document so that other business owners involved will not have any questions when the time comes. It could also be triggered by one of the owners getting divorced or filing for personal bankruptcy.

2. Specify the terms of the eventual buyout. When you enter into the buy-sell agreement, it is best to specify the exact selling price at that time. You may need to have the business appraised or you could value it based on current sales or some other factor. By doing this, the other owners of the business will know how much your share will be sold for.

3. Outline under what circumstances new owners will be able to get involved in a business. In some cases, you may wish to sell your shares in a business to outside investors instead of to the other partners in the business. When you create the document, include information about who can buy into the company and for how much.

4. Specify exactly what is being conveyed. This could include all of the business property, the customer base and other items that the company owns.

5. Sign the document, and have the other parties involved in the agreement sign it as well. You may want to get the document notarized so that there is no confusion about whether it was actually signed appropriately.

Tips & Warnings

• Buy life insurance policies for the members of the agreement. This way, when one of the owners of the business dies, the other members can receive a payout to buy that owner's share of the business.

References

• "Inc."; How to Write a Buy-Sell Agreement; Stephanie Clifford; November 2006
• Nolo: When Does a Business Need a Buy-Sell Agreement?
• "The CPA Journal"; Understanding Buy-Sell Agreements; Howard Davidoff; April 2006