42020Dez

Business Buyout Agreements

If the partnership has the money in-house or has the cash flow and assets to qualify for credit, it can make a lump sum purchase from the outgoing partners. However, if the partnership does not have access to funds or financing, it can structure a payment agreement or payment plan that is suitable for everyone. For example, the partnership can structure the payment as a regular loan, with a monthly payment or quarterly payments with a balloon at the end. Payment terms can be as long as three or eight years. Unfortunately, business partnerships (such as marriages) have a high failure rate depending on how statistics are calculated. When you enter into a commercial partnership, you should put in place a buy-back agreement when you enter into your partnership agreement, either as part of the agreement itself or as a separate legal document. To avoid this situation, some buyback agreements use the so-called „lead gun“ clause. This clause is triggered when a shareholder makes an offer to purchase the shares of other partners at a specified price. The other shareholder must choose one of the two options – they can either accept the offer or buy the shares of the shareholder offering the offer at the same price. This prevents both sides from making a „low-ball“ offer. Unfortunately, in many cases, shareholders are unable to agree on the valuation of the shares and the buyback process is deadlocked. This is usually the case when relations between shareholders have deteriorated and one or more shareholders wish to leave. This often results in lengthy and costly legal proceedings.

Other valuation factors are unpaid wages, dividends or shareholder credits. There is also an immaterial impact on valuation – if the outgoing shareholder holds an important position within the organization, this can have a negative effect on the continuity of the business. To avoid this, buyouts can be structured so that a partner cannot open a competing business within a specified time frame or in the same geographic location or cannot address former customers. If the partners have not opted for a buyback process before, the first step is to determine the value of the partnership.