Buyout Agreements

What are buyout agreements?

Buyout agreements are legal agreements between co-owners of a business to establish the terms and conditions under which a co-owner can sell their ownership interest in the company to another co-owner or a third-party buyer. These agreements typically cover the purchase price, payment terms, and conditions for transferring ownership.

Parties structure buyout agreements depending on the business’s needs and the co-owners’ preferences. For example, a buyout agreement may include a right of first refusal, giving the remaining co-owners the option to buy out a departing co-owner before selling their interest to a third party. Alternatively, the agreement may provide for a mandatory buyout in the event of specific triggering events, such as a co-owner’s death, disability, or retirement. They may also include provisions for determining the value of the business, such as through a professional appraisal or a formula based on financial metrics.

Overall, a buyout agreement can help clarify and structure the process of transferring ownership in a business, which can be essential for maintaining stability and continuity over the long term.

Need help with a matter related to buyout agreements? Schedule your consultation today with a top shareholder disputes and derivative litigation attorney.

In Florida, which laws and regulations apply to buyout agreements?

The specific laws and regulations that apply to buyout agreements in Florida include the following:

Florida Revised Uniform Partnership Act: This statute provides the framework for partnerships in Florida, including provisions relating to the dissolution and winding up of partnerships, as well as the rights and obligations of partners.
Florida Revised Limited Liability Company Act: This statute governs LLCs in Florida and allows LLC members to enter into operating agreements that can include provisions related to buyout agreements.
Florida Business Corporation Act: This statute governs corporations and includes provisions relating to the transfer of shares and the dissolution and winding up of corporations.

In addition to these state laws, other laws and regulations may apply to specific types of businesses or industries. For example, businesses in specific regulated industries, such as healthcare or finance, may be subject to additional rules and requirements that affect their buyout agreements.

What are common issues regarding buyout agreements that lead to litigation?

Buyout agreements can be complex legal documents, and disputes can arise if the terms of the agreement are unclear or if one party feels that its rights have been violated, including in the following circumstances:

Valuation disputes: One of the most common issues that can lead to litigation in a buyout agreement is disputes over the valuation of the business, such as a disagreement over the value of the business or when the valuation methodology outlined in the agreement is ambiguous.
Trigger events: Buyout agreements are typically triggered by specific events, such as the death, disability, or retirement of a partner. Disputes can arise if there is a disagreement over whether the triggering event has occurred or if there is a disagreement over whether the buyout agreement covers the triggering event.
Payment terms: Buyout agreements typically outline the payment terms for the buyout, including the purchase price and the payment schedule. Disagreement over the payment terms, such as the amount of the purchase price, the payment schedule, or the payment method, may sometimes lead to legal disputes.
Breach of the agreement: Disputes can also arise if one party believes that the other party has breached the terms of the buyout agreement. Breaches can include failing to comply with the valuation methodology, failing to pay the purchase price, or failing to transfer ownership of the business as required by the agreement.
Ambiguity: A disagreement over the interpretation of the buyout agreement, such as the meaning of specific terms or the parties’ intent when the agreement was signed, can also create complex issues for the parties to a buyout.

To avoid these issues, it’s essential to draft a buyout agreement that is unambiguous and covers all potential scenarios that may arise in the future. When a set of facts is appropriate to meet the requirements giving rise to problems with buyout agreements, there are many paths a claimant may take. We are value-based attorneys at Jimerson Birr, which means we look at each action with our clients from the point of view of costs and benefits while reducing liability. Then, based on our client’s objectives, we chart a path forward to seek appropriate remedies.

To determine whether your unique situation may necessitate litigation, please contact our office to set up your initial consultation.

Frequently Asked Questions

What should a buyout agreement include?

A buyout agreement should include details such as the purchase price, payment terms, the triggering event that would initiate the buyout, and any restrictions on the sale of ownership interests.

Why are buyout agreements important?

Buyout agreements can help avoid disputes and uncertainty if one owner wants to sell their share of the business. They also provide a framework for how the buyout will occur and ensure that the remaining owner(s) clearly understand the purchase price and payment terms.

What is a triggering event in a buyout agreement?

A triggering event is a specific event that would initiate the buyout of one owner’s share of the business, such as death, disability, or retirement.

Can a buyout agreement be terminated or modified?

Yes, a buyout agreement can be modified or terminated, but it typically requires all parties’ agreement.

What happens if there is no buyout agreement in place?

If there is no buyout agreement in place, the parties may need to rely on default rules or state laws to determine the buyout terms, leading to disputes and uncertainty.

Have more questions about a buyout agreement-related situation?

Crucially, this overview of buyout agreements does not begin to cover all the laws implicated by this issue or the factors that may compel the application of such laws. Every case is unique, and the laws can produce different outcomes depending on the individual circumstances.

Jimerson Birr attorneys guide our clients to help make informed decisions while ensuring their rights are respected and protected. Our lawyers are highly trained and experienced in the nuances of the law, so they can accurately interpret statutes and case law and holistically prepare individuals or companies for their legal endeavors. Through this intense personal investment and advocacy, our lawyers will help resolve the issue’s complicated legal problems efficiently and effectively.

Having a Jimerson Birr attorney on your side means securing a team of seasoned, multi-dimensional, cross-functional legal professionals. Whether it is a transaction, an operational issue, a regulatory challenge, or a contested legal predicament that may require court intervention, we remain a tireless advocate every step of the way. Being a value-added law firm means putting the client at the forefront of everything we do. We use our experience to help our clients navigate even the most complex problems and come out the other side triumphant.

If you want to understand your case, the merits of your claim or defense, potential monetary awards, or the amount of exposure you face, you should speak with a qualified Jimerson Birr lawyer. Our experienced team of attorneys is here to help. Call Jimerson Birr at (904) 389-0050 or use the contact form to schedule a consultation.