Buyout provisions are meant to address potential problems that may arise after a business organization undergoes a change in control of the ownership interests by specifying the terms of the value of an economic interest. The changes occur in the event of dissociation, expulsion, death, divorce, disability, or retirement, etc. The buyout agreement is necessary in situations where a South Carolina partnership, corporation or limited liability company seeks financing because it typically shows lenders, purchasers or other third parties that the business is stable, well organized, and responsible by accounting for potential future changes in circumstances.
There are two main types of buyout agreements. The first is the cross purchase agreement, where remaining business owners buy the other partner’s, member’s or shareholder’s ownership interest in the business. The second type of buyout agreement is the redemption agreement where the company buys, or “redeems,” the other partner’s, member’s or shareholder’s ownership interest. Life insurance policies are typically used to ensure that funds are available for cross-purchase and redemption transactions.