Alberty Publishing Online: Item Detail

Price: $30.00
Revised: July 1, 2008 - 13 pages

Description:
Form 5.6 is a buy-sell agreement between an LLC and its members that restricts the transfer of members’ interests and provides a structure for liquidating members’ interests on withdrawal, death, or incapacity. Maintaining the integrity of the ownership of a closely-held LLC is a common concern because it may be difficult to operate a business unless all members share the same goals. Transfer restrictions avoid unintended transfers of interests outside the group of an LLC’s initial owners. Withdraw, death, and incapacity of members can create problems for both the LLC and its members. The LLC may want to avoid dissolution and be able to purchase the affected member’s interest at a reasonable price. Members may want the assurance that their interests will be purchased promptly and for a reasonable price, or the interests will otherwise be liquidated, if they should withdraw, die, or become disabled. This agreement addresses all of these concerns.

Many LLCs have operating agreements that already contain buy-sell provisions and may not need a stand-alone agreement like Form 5.6. But a stand-alone agreement might be entered into by such an LLC with an employee who owns a minority membership interest. The agreement could provide the opportunity for the LLC to purchase the member’s interest when his or her employment terminates. It might also provide for a simple method of fixing the purchase price for the member’s interest, such as one based on book value computed by the LLC’s accountant, which can be computed quickly and limits the need to provide the member with sensitive financial information. Finally, if the member is a party to a separate buy-sell agreement, he or she can be denied the right to participate in setting the purchase price for other members’ interests, determining whether those interests will be purchased, and participating in the purchase of the interests.

Features:

Buy-sell provisions, dissociation – Buy-sell agreement gives the LLC and the other members the option to purchase the interest of a member who has dissociated.
Buy-sell provisions, purchase price – Buy-sell agreement provides that the purchase price for a member's interest is based on a stipulated value agreed upon in advance by the members, or if there is no stipulated value in effect, by agreement of the seller and purchaser, and if that fails, by appraisal.
Buy-sell provisions, purchase price, allocation method – Buy-sell agreement contains alternative provisions for determining the purchase price of members’ interests in LLCs with straight-up allocations and in LLCs with special allocations of profits, losses, or other tax items.
Buy-sell provisions, terms – Buy-sell agreement provides that the purchase price for a member's interest is to be paid in five annual installments, with payment secured with the membership interest being purchased.
Dissociation, effect – Under buy-sell agreement, failure of LLC and other members to exercise their option to purchase a dissociated member’s interest dissolves the LLC.
Dissociation, option to purchase – Buy-sell agreement gives LLC and other members an option to purchase a member’s interest on withdrawal, expulsion, death, disability, dissolution, termination, or bankruptcy.
Life insurance – Buy-sell agreement authorizes LLC to purchase life insurance to fund purchases of members’ interests on death and seeks to avoid having the death benefits treated as income to the LLC.
Transfer restrictions, right of first refusal – Buy-sell agreement allows a member's interest to be sold or otherwise transferred only if the other members consent or the LLC and the other members fail to exercise rights of first refusal to purchase the interest.

FORM 5.6 – Buy-Sell Agreement