If you or your business partner has decided that their time in the U.S. has come to an end, but the remaining partner wants to stay and continue the enterprise, you will likely want to hold a buyout. Hopefully, you already have a buy-sell agreement in your original operating agreement that will help delineate your buyout procedure. But whether you do or you don’t have a well-laid plan, you’re still going to need a buyout agreement to bring your partnership to an end.
Here is a brief tutorial to help you get started. Of course, we recommend that you hire a lawyer to ensure that your buyout agreement covers all the bases properly. However, having a general understanding of what is involved will help you get comfortable with the process, and may begin necessary and healthy conversation between you and your business partner(s). In other words, do not use this without assistance.
Let’s introduce the contract:
CONSENT AND AGREEMENT TO BUYOUT AND RELEASE YOUR COMPANY
THIS CONSENT AND AGREEMENT TO BUYOUT AND RELEASE (this “Agreement”) is made and entered into this ________ day of May, 2012, by and among Party 1 (“P1“), Party 2 (“P2”), and Your Company, LLC, a Florida limited liability company (“Your Company”).
Now, let’s give some background to the events that led up to this buyout. These background statements often begin with legalese like “whereas”:
WHEREAS, P1 and P2 executed that certain Operating Agreement of Your Company, LLC, a member-managed Limited Liability Company on January 1, 20____ (the “Operating Agreement”) related to the creation, management, and operation of Your Company;
WHEREAS, pursuant to the Operating Agreement, P1 and P2 agreed to form Your Company;
WHEREAS, P2 delivered notice of his intent to withdraw from Your Company to all other members;
WHEREAS, P1 and P2 have consented and agreed to waive the written notice and _____ days written notice period before the date of withdrawal so that withdrawal is immediately effective;
WHEREAS, pursuant to the Operating Agreement as defined herein, P1 and P2 entered into mediation to resolve any disputes between them in order to minimize the costs of arbitration or litigation and the risk of economic loss to each of them individual and to Your Company;
WHEREAS, to achieve withdrawal of P2 as member of Your Company, P1 and P2 have agreed to enter into this Agreement;
WHEREAS, the parties hereto believe that the execution of this Agreement is in the best interest of themselves and Your Company to preserve and protect Your Company, from which all parties should benefit, and in order permit Your Company to continue business in a timely manner without delay, the parties hereto desire to enter into this Agreement; and
WHEREAS, P1 and P2, to the best of their knowledge and based upon discussions with staff of Your Company, believe this Agreement will be acceptable and will take no affirmative action to nullify or otherwise disrupt this Agreement.
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and to induce P1, P2, and Your Company to enter into this Agreement, to permit withdrawal of P2, and to permit the continued existence of Your Company, the parties agree as follows:
Next, we get into the true meat of the agreement:
1. Recitals. The foregoing Recitals are true and correct and are incorporated into and form a part of this Agreement.
2. Buyout. Pursuant to that certain Operating Agreement executed on January 1, 20____ between P1 and P2, and for and in consideration of $1.00, P2 has absolutely sold and conveyed to P1 all of P2’s right, title and interest in Your Company. P1, as a 50% owner and member of Your Company, hereby acknowledges that his consent and agreement to this Agreement is granted in consideration of the terms and provisions of this Agreement, and the agreed upon purchase price of P2’s share of Your Company. P2, as a 50% owner and member of Your Company, hereby acknowledges that his consent and agreement to this Agreement is granted in consideration of the terms and provisions of this Agreement, and the agreed upon purchase price of P2’s share of Your Company. Such purchase price shall be ____________________________________________ dollars. P1 and P2 consent and waive their right to _______days written notice before the date the withdrawal is to be effective.
3. Consent and Transfer to P1. The parties acknowledge, agree, and consent that P2 intends to cause all of P2’s right, title and interest in Your Company to be transferred from P2 to P1 and upon the effective date of such transfer, P1 shall be deemed to be sole member and owner of Your Company for all purposes of this Agreement and the Operating Agreement and shall be deemed to have succeeded to and assumed all of Your Company’s rights and obligations thereunder.
So, we’ve transferred the company’s assets and title. If you really want to cut ties and walk your separate ways, you may also want mutual releases of liabilities and indemnification:
4. Release. P2 hereby releases P1, Your Company, all of their subsidiaries, and each of their directors, officers, shareholders, employees, agents and attorneys (collectively, the “Your Company Related Parties“), and the Your Company Related Parties hereby release P2 from any claims or potential claims it or he has or may have against each other concerning Your Company and the Operating Agreement for acts or omissions occurring on or prior to the effective date of this Agreement, but specifically excluding any claims arising from any misrepresentation, act or omission or failure to perform any obligation under this Agreement.
5. Indemnification. P2 agrees to indemnify and hold harmless each of the Your Company Related Parties from any and all loss, costs and expenses (including, without limitation, all legal fees and costs) resulting from any misrepresentation of P2 to any of them under this Agreement and any claims or potential claims from third parties based on any prior dealings between such third parties and P2 concerning Your Company and the subject matter of the Operating Agreement provided that Your Company shall remain responsible to perform its express obligations set forth in the Operating Agreement. Each of the Your Company Related Parties agrees to indemnify and hold harmless P2 from any and all loss, costs and expenses (including, without limitation, all legal fees and costs) resulting from any misrepresentation of any of them under this Agreement and any claims or potential claims from third parties based on any prior dealings between such third parties and any of the Your Company Related Parties concerning Your Company and the subject matter of the Operating Agreement which were not permitted dealings thereunder.
And if you’re worried about your business partner coming back unannounced, or want to make sure to protect your personal information, you may consider a noncompete and confidentiality agreement. Remember to check your state’s laws on noncompete agreements:
6. Noncompete/Confidentiality. Unless otherwise agreed to by Your Company, P2 agrees that (a) he shall and shall cause each entity in which he shall directly or indirectly own any equity interests (or if such entity is a publicly traded entity, any such entity in which he owns at least 10% of the outstanding voting equity interests), together with any officers, directors, equity owners, employees and agents of such entity (collectively, the “Noncompete Parties”), to comply with each of the noncompetition and confidentiality provisions set forth in this Agreement, and (b) that he shall not and shall cause each of the other Noncompete Parties to not directly or indirectly solicit or enter into any consulting, brokerage, management, financing or other similar agreement with any business with respect to its X type of business and related services or with any party seeking such an agreement with such business or other X type of business and related services enterprise, related to a X type of business and related services enterprise located or to be located within a fifty (50) mile radius of the Your Company’s X type of business and related services enterprise or the Your City area for five (5) years from the effective date of this Agreement. This Agreement, the Operating Agreement, the business contacts, trade secrets, and goodwill of Your Company, and any disputes between the parties to this Agreement shall remain confidential, except for disclosures of information by a party reasonably required in the ordinary course of its business or by applicable law or regulation.
In order to dot your i’s and cross your t’s, you and your partner may wish to assure each other that you haven’t already sold the farm last week, and that you will do whatever it takes to close the deal before departure:
7. Representations and Warranties. P2 hereby represents and warrants that (a) P2 has transferred to Your Company all rights and assets held by P2 with respect to Your Company and the Operating Agreement, (b) except for any agreement expressly referred to herein, P2 has not entered into any agreements or understandings with any party with respect to Your Company, (c) P2 has not taken any act or failed to take any act that would cause a default or breach by Your Company of its obligations under the Operating Agreement, (d) P2 has not directly or indirectly assigned, conveyed, pledged or otherwise transferred to any party any interest or rights in Your Company or any revenues or profits to be derived therefrom, and (e) P2 has the full legal right and authority to execute, deliver and perform this Agreement, and the consent, authority or signature of no other party is required in connection therewith.
8. Further Assurances. P2 agrees to execute such additional documents and agreements as are necessary to effectuate the intents and purposes of this Agreement.
Finally, while cooler heads are prevailing, you should think about how you would wish to work out future disputes (just in case):
9. Governing Law. This Agreement will be governed by and interpreted in accordance with Florida law.
10. Dispute Resolution. In connection with any dispute hereunder, the parties agree to negotiate in good faith for up to twenty (20) days. If they are unable to resolve the dispute in such period, then either party may demand and such dispute shall be submitted to mediation and thereafter binding arbitration pursuant to Section Z of the Operating Agreement. No mediator or arbitrator or other party to a mediation or arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business or by applicable law or regulation. If more than one agreement for mediation and arbitration by or between the parties potentially applies to a dispute, the mediation and arbitration provision most directly related to the documents between the parties or the subject matter of the dispute shall control. This mediation and arbitration provision shall survive termination, amendment or expiration of any of the documents or any relationship between the parties.
11. Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors and assigns, except that P2 may not assign his rights or obligations hereunder except with the prior written consent of P1 in its sole discretion.
12. Miscellaneous. Time is of the essence in the performance of this Agreement. This Agreement and the documents referred to herein embody the entire agreement and understanding between the parties with respect to the subject matter hereof and thereof. This Agreement supersedes all prior agreements and understandings relating to the subject matter hereof. This Agreement may be executed in any number of counterparts and by facsimile, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Agreement by signing any such counterpart, provided that this Agreement shall not become effective until all parties have executed the same.
We hope having a general concept of the buyout agreement starts a healthy dialogue between you and your business partners. The cleaner the departing treaty trader or investor partner can walk away, the happier all parties will be in the future.