Why You Need a Buyout Agreement

Your buyout agreement will instruct and remind you and your partners how you have agreed to handle the sale or buyback of an ownership interest when one partner's circumstances change. Without one, if one partner quits to move to another city or leaves to start another business, your partnership might, by law, be dissolved, forcing you to divide any assets and profits among the partners and decide whether to start a new partnership with the remaining partners.

Even if your partnership doesn't end, you may still have an argument over whether you should buy out the departing partner's ownership interest, and for how much. If you don't anticipate and plan for circumstances like these, you risk serious personal and business discord -- perhaps even court battles and the loss of your business.

In addition, a buyout agreement can control who can buy into the partnership. Otherwise, you might be stuck sharing control of the company with someone you would rather not run a business with.

How to Create a Buyout Agreement

For a fill-in-the-blank buyout agreement and instructions on how to incorporate it into your partnership agreement, see Business Buyout Agreements: A Step-by-Step Guide for Co-Owners, by attorneys Anthony Mancuso and Bethany K. Laurence (Nolo).