Top 10 Tips for End-Equity Buyout Agreements

1024 578 Tony Guo

Top 10 Tips for End-Equity Buyout Agreements

Every beginning has an end; it is the simple circle of life. This extends to the business world where even the closest and special business partnerships almost always have and ending as well. This is why it is extremely important to consider just how you will proceed when the relationship will have inevitably run its course. This is where end-equity buyout agreements come into play. This is basically a buyout agreement, a legally binding one at that, between the various equity holders, that spells out how the future buyout of one equity owner or more will be handled. It may look pessimistic to set this up at the start of the agreement, but it is important so as to avoid any tug-of-wars in the future. They usually deal with wide ranging issues and given their obvious importance, it is prudent to get their drafting right. This article will therefore look to highlight ten tips to keep in mind when drafting these end-equity buyout agreements with more information on their workings to be found on runrex.com.

The first tip has to do with the most contentious part of an end-equity buyout agreement; coming up with the buyout valuation. The tip here to keep in mind is ensure in its drafting, you state clearly the procedure of how the buyout valuation will be arrived at. For example will it be arrived at by the use of an independent expert? Will unpaid salaries and dividends play a role in its determining? All this factors must be clearly articulated in the agreement to avoid conflict when it does get triggered.

The next tip in the drafting of this agreement is ensuring you draft in what is referred to as a shotgun clause. This prevents the parties involved from making a derisory offer by stipulating that once an equity holder has made an offer to purchase equity from another holder, the other holder can either accept the offer or buyout the equity of the offering holder for the same price. This injects some seriousness into the whole of this process.

When drafting the end-equity buyout agreement for your company, always ensure you include a buyout agreement as a rule of thumb. This ensures that when the buyout agreement is triggered, the running of the business is not interfered with.

Another tip worth considering when drafting an end-equity buyout agreement is you have to clearly stipulate under which conditions the agreement will be triggered and the provisions that come into effect. Some of the scenarios that may trigger it include death, bankruptcy, retirement, legal issues among others. This should be highlighted clearly to avoid legal tussles in the future.

The next tip we have for you is that where possible, when drafting these buyout agreements, you might want to stipulate buyout funding options. This should stipulate where one can get funding to buy someone, either internally or exclusively externally. It should also state whether equity-based funding is allowed or not. This helps prevent any financial foul play when the time does arrive.

Another important tip we can’t fail to mention is make sure you make use of an experience legal team in its drafting to make sure that it falls within all the state and federal legal frameworks. This also ensures that it is foolproof to avoid its legality being challenged when the time when it has to come into effect comes.

Speaking of help, there are lots of tools and resources out there you can use in its drafting. These include internet tools, webinars and so much more which will give you an idea of the what works and what doesn’t as well as emerging trends as far as end-equity buyout agreements are concerned. Our tip here is making sure you make use of this tools and resources.

Another equally important tip when drafting these buyout agreements is making sure you put the company first, always, and you don’t let emotions govern you. This is because these agreements usually have far reaching consequences therefore approaching them in a sober manner is paramount. Ensure, even if friends and family are involved, you are not swayed by emotion when drfafting.

It is also important to set deadlines for each step of the end-equity buyout agreement when drafting it. This helps prevent there being an impasse and consequently affecting the running of the company. This is important so as to save time and resources.

The last tip, but one is the cornerstone of these buyout agreements is that you have to be willing to compromise. There is usually a lot riding on this agreements, and all parties involved in their drafting have to be willing to concede ground in their drafting so as to ensure that a satisfactory document is drafted.

From the foregoing, it is clear that there is a lot to consider when drafting an end-equity buyout agreement, which just goes to show how important they are; hopefully the above tips come in handy. As always for more on this topic and then some, ensure you visit runrex.com.

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