Breaking up is hard to do … or at least, it should be!
- Operating Agreements and Bylaws are the rules by which a businessentity operates and almost all default statutory provisions can be updated by the agreements
- Provisions in the documents usually describe how members join and how interest is transferred. If no specific provision, state law applies, but the agreements can override state law.
Interestingly, and importantly for a small business owner, provisions in the document can limit or force transfer in several ways. For example, an operating agreement might actually force a sale of the membership share under specific circumstances.
Each Member agrees that if the Member suffers any involuntary transfer or purported involuntary transfer of part or all of the Member’s Shares, including but not limited to any transfer or purported transfer resulting from bankruptcy, insolvency, divorce, or otherwise, the Member shall be deemed to have made on the date of the event an offer to sell all of the Member’s Shares
Subject to the provisions of this Article, a Member may assign the Member’s Capital Shares in the Company in whole or in part. The assignment of Capital Shares does not itself entitle the assignee to participate in the management and affairs of the Company or to become a Member. The assignee is only entitled to receive, to the extent assigned, the distributions to which the assigning Member would otherwise be entitled.
- Who can buy a departing partner’s or shareholder’s share of the business (this may include outsiders or be limited to other partners/shareholders);
- What events will trigger a buyout (the most common events that trigger a buyout are: death, disability, retirement, or an owner leaving the company) and;
- What price will be paid for a partner’s or shareholder’s interest in the partnership.
- The agreement or stock itself my impose Stock sale restrictions, Stock income restrictions
- Often, will include Non-compete clauses
Funding a Purchase
Terms of Sale
The Purchase Price shall be paid in full by a certified or bank cashier’s check at the Closing; or, at the sole election of the Company, the Purchase Price shall be paid by the delivery of a certified or bank cashier’s check in an amount equal to 20 percent of the Purchase Price, and the balance shall be paid pursuant to a nonnegotiable promissory note of the Company (the Note) providing for equal annual payments of principal, together with accrued interest, over the following five years beginning on the first anniversary of the Closing.
- Part 3 – What is my business worth?
- Part 4 – What do I actually own of my business? Is it even mine?
- Part 5 – Who’s next?
- Part 6 – Protecting your business with an Operating Agreement.