The buyout agreement is an important aspect of a South Carolina partnership agreement, shareholder or operating agreement. It safeguards against circumstantial changes that occur from a change in control of the company, dissociation or expulsion of a partner, shareholder or member, death, incapacity or resignation.
The buy-sell agreement addresses issues that may arise from such changes in circumstances, for instance: How could a decedent’s heirs liquidate the ownership interest to pay expenses and taxes; what happens if an heir or an outside buyer of the decedent’s share interferes with the business’ operation; can the business buy back a decedent’s ownership interest; how is a member, a shareholder, or a partner’s economic interest bought out in the event of expulsion or dissociation; how is a business owner to be bought out in a judicial dissociation or dissolution; how is a valuation to be determined for each partners, shareholders, or members economic interest in the company should a change in control of the company occur?
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.