October 13, 2018
Here’s one last issue that Chris Mercer raised in his Buy/Sell Agreements book that I want to share with you. Once you have (1) decided when an event triggers a buyout, and (2) computed how you’ll fund the purchase, you need to determine who gets to make the purchase and how you’ll come up with the buyout amount. As to who get to purchase, buy/sell agreement fall into three main categories, just as Baskin Robbins ice cream has single flavors (chocolate), mixed flavors (Gold Medal Ribbon (R)), and textured (ah, Rocky Road). There are: Cross-purchase agreements. The business owners will take the responsibility to buy the ownership interests from each other when the trigger event occurs. Entity-purchase agreements. The company buys the interest back from the owners. Hybrid agreements. The company gets first dibs at the ownership interest but if it refuses, the remaining owners get the opportunity to acquire the departing interest. How much will you pay for the interest? Well, to take the poet, Elizabeth Barrett Browning, out of context, “Let me count the…
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