Problems that can occur if your Buy-Sell Agreement, Operating Agreement or similar is out of date
  • Shares have been issued to new owners but they are not subject to the agreement.
  • The valuation formula does not reflect true current value (e.g., based on book value with no value to goodwill vs. multiple of revenues/earnings).
  • The valuation formula does not reflect the owners’ perception of value
  • Valuation formula imposes unexpected discounts, such as for minority interest or lack of marketability, or it does not include expected discounts.
  •  Valuation mechanism is cumbersome and expensive (for example, requiring multiple appraisers).
  • Valuation mechanism requires periodic agreements on valuation, which are out of date.
  • Triggers of buy-sell rights do not cover reasonably likely events (death, disability, termination, divorce, bankruptcy).
  • Buy-Sell rights no longer reflect actual family dynamics.
  • The agreement does not provide for adequate funding for the purchase obligations.
  • Timing of payment terms for a buy out are not achievable or impose burdensome tax obligations.
  • Interest rate on deferred buy-out payments is too high or too low.
  • The buy-out valuation is different than the buy-in valuation, providing a premium to departing shareholders.
  • There is a conflict between the Buy-Sell Agreement and earlier adopted provisions of the Articles of Organization.
  • Extended buy-out terms are inadequately secured.

About the Author

John Koenig
John Koenig