Business Buyout Agreements: A Step-by-step Guide for Co-Owners - 4th Edition

358 Pages·2007·3.55 MB·English

by  Anthony Mancuso

4th edition
Business Buyout
Agreements
A Step-by-Step Guide for Co-Owners
by Attorneys Anthony Mancuso &
Bethany K. Laurence
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4th edition
Business Buyout
Agreements
A Step-by-Step Guide for Co-Owners
by Attorneys Anthony Mancuso &
Bethany K. Laurence
Fourth Edition JunE 2007
Editor BEthany K. LaurEncE
Book design tErri hEarsh
Proofreading susan carLson GrEEnE
index nancy BaLL
Printing dELta PrintinG soLutions, inc.
Mancuso, anthony.
Business buyout agreements : a step-by-step guide for co-owners / by anthony
Mancuso & Bethany K. Laurence. -- 4th ed.
p. cm.
isBn-13: 978-1-4133-0648-4 (pbk.)
isBn-10: 1-4133-0648-9
1. sale of business enterprises--Law and legislation--united states--Popular
works. i. Laurence, Bethany K., 1968- ii. title
KF1659.Z9M36 2007
346.73'0652—dc22
2007002239
copyright 1999–2007 © by anthony Mancuso and nolo.
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Acknowledgments
Many people at nolo Press contributed to this book: our
special thanks to Jake Warner, whose encouragement and
guidance helped make this book a reality. Major thanks to
terri hearsh for her patience and hard work in designing
and laying out the book and to susan Putney for her colorful
cover. also, sincere thanks go to Mike Mansel for reviewing
the funding and insurance chapter and to Walter Gibbons for
lending a keen eye to the tax law chapter.
Dedication
to Jason, who became my husband somewhere in between
the second and third drafts, without whose warm support and
tireless tolerance i might not have finished this book.
—BKL
About the Authors
Anthony Mancuso is a corporations and limited liability company
expert. he graduated from hastings college of the Law in
san Francisco, studied advanced business taxation at Golden
Gate university in san Francisco, and is an active member of
the california state Bar. Mr. Mancuso is the author of nolo’s
bestselling titles on forming and operating corporations (both
profit and nonprofit) and limited liability companies. his titles
include Incorporate Your Business, How to Form a Nonprofit
Corporation (national and california editions), Form Your Own
Limited Liability Company, The Corporate Records Handbook,
and LLC or Corporation? he researched, wrote, and programmed
LLCMaker and Incorporator Pro software programs, published by
nolo, which generate state-by-state articles and other forms for
organizing corporations and LLcs in each of the states. his books
and software have shown over a quarter of a million businesses
and organizations how to form an LLc or corporation. he also
is a licensed helicopter pilot and has performed as a guitarist in
various musical idioms, including jazz and blues.
Bethany K. Laurence joined nolo as a legal editor in 1997. she
holds a law degree from university of california, hastings college
of the Law, a B.a. degree from Boston university (Phi Beta
Kappa, magna cum laude), and is a member of the california
state Bar. Ms. Laurence has combined her legal and financial
expertise to edit many nolo books over the years, including
Form Your Own Limited Liability Company, Tax Savvy for Small
Business, The Small Business Start-Up Kit, and California Workers’
Comp: How to Take Charge When You’re Injured on the Job. Prior
to joining nolo, Ms. Laurence worked as an electronic product
developer at cch, inc. (a division of Wolters Klewer, inc.), where
she created legal online and cd-roM products. over the last
decade she has been active on the board of directors of several
local environmental and educational nonprofit organizations.
Table of Contents
Introduction
Your Legal Companion for Creating a Buyout Agreement
1 An Overview of Buyout Agreements
What a Buy-Sell, or Buyout, Agreement Can Do ...............................................................8
When Should You Create a Buyout Agreement? .............................................................16
Does Everyone Need a Buy-Sell Agreement? .....................................................................17
How to Create Your Agreement ...............................................................................................18
When to Seek a Lawyer’s Advice .............................................................................................20
2 Limiting the Transfer of Ownership Interests
Transfers of Ownership Interests ..............................................................................................24
Using a Right of First Refusal......................................................................................................25
Using Absolute Transfer Restrictions ....................................................................................43
3 Providing the Right to Force Buyouts
Changes in an Owner’s Circumstances ................................................................................48
If an Owner Retires or Stops Working ...................................................................................52
If an Owner Becomes Disabled ..................................................................................................65
If an Owner Dies ................................................................................................................................74
If an Owner Divorces ......................................................................................................................88
If an Owner Loses a License .........................................................................................................93
If an Owner Files for Personal Bankruptcy .........................................................................96
If an Owner Defaults on a Personal Loan ............................................................................99
If an Owner Needs to Be Expelled ........................................................................................104
4 Structuring Buyouts
Company vs. Co-Owners as Buyers ......................................................................................110
The “Wait and See” Approach Works ................................................................................115
5 Funding Buyouts
Funding With Cash .......................................................................................................................134
Borrowing Money ..........................................................................................................................135
Buying Insurance ............................................................................................................................135
Making Installment Payments ................................................................................................149
6 How to Set the Buyout Price in Your Agreement
Why Choose a Price in Advance? ..........................................................................................152
What Valuation Methods Are Based On ..........................................................................154
How Our Valuation Provisions Work ..................................................................................157
Agreeing on a Fixed Price...........................................................................................................159
Using a Buyout Formula .............................................................................................................164
7 Choosing Payment Terms for Buyouts
Balancing the Interests of Buyer and Seller ......................................................................188
Lump-Sum Cash Payment .........................................................................................................190
Installment Plans ............................................................................................................................191
Customized Schedule of Payment ........................................................................................197
Creative Ways to Pay ....................................................................................................................198
8 Completing and Updating Your Buyout Agreement
Finalizing Your Buyout Agreement ......................................................................................202
Resolving Buyout Disputes in the Future ..........................................................................212
Binding Future Owners Under Your Buyout Agreement .........................................222
Updating Your Agreement .......................................................................................................223