Buyout traps for privately held businesses by Michael May, an estate and business succession planning attorney.
Any business with more than one owner eventually faces the issue of succession, typically in the context of an owner’s retirement, death, or disability. Except in cases where shares are given or bequeathed to family members, it is usually anticipated that shares will be redeemed by the business or purchased by the other owners upon these events. As a business and estate attorney, I often see hidden traps in buyout arrangements.
In situations where there is no formal agreement, most states have “default” rules governing the departure of a business owner. For example, Wisconsin law entitles a departing LLC owner to a distribution in complete redemption of his interest within a “reasonable time.” These rules can create liquidity problems for the remaining members. An LLC operating agreement or buy-sell agreement can be drafted with structured payments to solve the problem.
Read more here in the latest issue of BizTimes Milwaukee.