Buy Sell Agreements Archives

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Prepare a custom Buy Sell Agreement for $1,294 after a $700 discount (if we formed the LLC or prepared its Operating Agreement) or $1,994 without the discount. This important document contains the exit strategy that can result in a buy out of a membership interest when a member dies, is convicted of a felony, files bankruptcy, defaults under the Operating Agreement or suffers one of 19 other possible triggering events. Note: Review our Buy Sell Agreement Preparation Questionnaire to see how comprehensive our agreement is.

Richard Keyt2023-02-18T10:32:02-07:00December 21st, 2019|Buy Sell Agreements, Forming LLCs, Operating Agreements|0 Comments

The Importance of a Well Drafted Buy Sell Agreement

Last month I attended a four hour seminar on Buy Sell Agreements. I’ve been drafting Buy Sell Agreements for LLCs since 1992, but the seminar gave me a lot of new information. I especially enjoyed the presentations by two very experienced business appraisers. The seminar caused me to review and revise my Buy Sell Agreement and to write several new articles about Buy Sell Agreements to help people learn about and understand why all multi-member LLCs (other than a married couple LLC) should have a comprehensive Buy Sell Agreement.

I also revised my online Buy Sell Agreement questionnaire to give my clients a lot of new options to select for their very custom drafted agreement. Scroll through my Buy Sell Agreement questionnaire and you will be amazed at the number of options and their depth. I doubt you could find anybody else that will give you as many options with respect to provisions to include or exclude from your Buy Sell Agreement.

Here is the list my articles about Buy Sell Agreements and why your multi-member LLC needs one drafted by somebody that knows what he or she is doing.

To learn more about Buy Sell Agreements and why your LLC needs one or needs to update its existing agreement sign up for my article called “Why Members of a Multi-Member LLC are Crazy if They Don’t Sign a Buy Sell Agreement.” To get this free article click on the link then give us your contact info and opt in. You will get the article and several follow up email messages that have more information about Buy Sell Agreements and how it can save you money and stress if the members of your LLC ever need to go their separate ways.

If you have any questions about Buy Sell Agreements call me at 480-664-7478 or my son Arizona LLC attorney and former CPA Richard C. Keyt at 480-664-7472. We don’t charge to answer questions over the phone.

Richard Keyt2018-11-12T08:38:40-07:00November 12th, 2018|Buy Sell Agreements, Operating LLCs|0 Comments

We Updated Our Buy Sell Agreement Triggering Events that Can Cause a Buy Out

Most multi-member LLCs other than a two member LLC owned by a married couple should have an exit strategy because like marriages, more than fifty percent of multi-member LLCs have one or more members who want a company divorce. If members of a multi-member company do not sign a contract that provides for the buy out of one or more members on the happening of an event described in the contract they are stuck together forever unless a member convinces a court in an expensive lawsuit to judicially dissolve the company. See my article on this important topic called “A Multi-Member LLC’s Most Important Document” aka a “Buy Sell Agreement.”

My Buy Sell Agreement is very comprehensive because it is the product of my 38 years of being a business lawyer who has seen far too many LLC divorces. I updated my Buy Sell Agreement to add more “triggering events.” A triggering event is an event that gives the company an option to buy the entire membership interest of the member who is involved in the event. Members can also provide in their Buy Sell Agreement that certain triggering events such as the death of a member require the company to buy the entire membership interest from the estate of a deceased member.

To hire me to prepare a Buy Sell Agreement one of the members must complete and submit my online Buy Sell Agreement questionnaire. The questionnaire asks the LLC member who completes the questionnaire to pick and chose the provisions and triggering events that will be included in their company’s Buy Sell Agreement. Look at the Buy Sell Agreement questionnaire to see the many triggering events that you can select or deselect for your company’s custom drafted Buy Sell Agreement. FYI: We can also arrange for all members to digitally sign their Buy Sell Agreement using DocuSign.

Here is a list of the triggering events from which my clients can select for their Buy Sell Agreement.

Triggering Event	Purpose
1. Any event the members desire	A Buy Sell Agreement can include any triggering events that are important to the members. For example, the members could agree that if the New York Yankees win the World Series, member 1 must sell to member 2 for $100.
2. Operating Agreement default	If a member defaults under the Operating Agreement signed by all of the members the LLC has an option to buy out the defaulting member.
3. Member fails to contribute money or property	This provision encourages a member to satisfy the member's obligation in a written document to pay money or assign property to the company because if the member fails to satisfy that obligation the LLC will have an option to buy out the defaulting member.
4. Death of a member	The LLC or surviving members have an option to purchase the interest of a deceased member. The Buy Sell Agreement can also require the LLC to buy-out a deceased member. These types of buy outs can be funded with life insure on the lives of members.
5. Member is convicted of a felony	Many LLC members do not want to have another member who has been convicted of a felony.
6. Divorce of a member	Prevents the wrong spouse from acquiring an interest in the LLC if two members own their interest as community property and they get divorced and the wrong spouse becomes the sole owner of all or a portion of the membership interest.
7. Member files for bankruptcy	If a member loses the member's interest in the LLC because of filing for bankruptcy, the company and other members should be able to buy the interest from the creditor who acquires it out of the bankruptcy.
8. Member transfers all or part of the member's membership interest without the approval of the other members	The Buy Sell Agreement provides that a member may not transfer or encumber all or any interest in the member's interest in the company without the approval of the members and compliance with the terms and conditions of the Operating Agreement and/or the Buy Sell Agreement. If a member violates the no transfer/encumbrance provisions, the LLC should have an option to acquire the interest of the defaulting member, perhaps at an amount less than the fair market value of the interest.
9. Termination of employment of a member	Applies only to a member who is employed full time by the LLC. Especially important when the employee is a minority member and should only own an interest while employed.
10. Member loses his or her professional license	Commonly used for LLC's that are owned by members who must be licensed in a particular area. For example, the Buy Sell Agreement of an LLC owned by physicians might give the LLC and other members an option to acquire the interest of a physician/member who loses his or her license to practice medicine.
11. Majority member sells membership interest	"Drag Along" provision: Majority member has the option to require minority members to sell their interests in the LLC if the majority member sells. The sale of the minority members' interests are on the same terms and conditions as the sale of the majority member's interest.
12. Majority member sells membership interest	"Tag Along" provision: Minority members have the option to require the majority member to include the sale of the minority members' interests in the LLC if the majority member intends to sell. The sale of the minority members' interests must be on the same terms and conditions as the sale of the majority member's interest.
13. Member is disabled	Used to acquire the interest of a member who become permanently disabled and unable to provide needed services for the LLC.
14. Member retires	Members sometimes want to retire, but without a Buy Sell Agreement that provides for a retirement purchase, it probably will not happen.
15. Member is incompetent	Applies if a member loses his or her mental capacity and a court appoints a conservator to manage the members financial affair.
16. Member files a false document with the ACC	If a member causes a false document to be filed with the Arizona Corporation Commission it is a triggering event that can cause a buy out,
17. Member causes somebody to be added or removed from the LLC's bank account	If a member causes a signer to be added or removed on the company's bank account without the approval of the members per the operating agreement it is a triggering event that can cause a buy out.

Other Important Provisions in My Buy Sell Agreement

My Buy Sell Agreement also contains the following provisions:

Restrictions on Transferring Membership Interests: Members may not transfer all or any part of their membership interest without the consent of the members. Transfers to family members or trusts are allowed unless your Buy Sell Agreement also prohibits these transfers.

Right of First Refusal: If a member desires to sell or transfer the member’s membership interest the company first and then the other members have the option to match to proposed sale and acquire the membership interest.

Life Insurance: Members may purchase life insurance on the life of other members and use the life insurance proceeds to pay the purchase price to buy the membership interest of a deceased member.

Non-Compete: This provision prohibits a member and/or ex-member from competing with the company’s business and hiring the company’s employees.

Dispute Resolution: This provision obligates the members to settle disputes without resorting to litigation.

Questions?

If you have any questions about Buy Sell Agreements, call me, Richard Keyt, at 480-884-7478 or send an email message to me at [email protected]. I don’t charge to answer questions about Buy Sell Agreements.

How to Purchase an LLC Buy Sell Agreement

To hire me to prepare your Buy Sell Agreement complete and submit my Buy Sell Agreement questionnaire.

Richard Keyt2018-09-02T11:54:53-07:00September 2nd, 2018|Buy Sell Agreements, Operating LLCs|0 Comments

No Written Contracts + Death of Single Member LLC Owner = Nightmare

Recently I met with two very troubled men who are at the beginning stages of a nightmare caused by the death of a member of an Arizona limited liability company and the LLC members’ failure to document their LLC and enter into a Buy Sell Agreement. As I listened to their tale of woe, I was reminded of the time I heard Mike Gallagher, the founder of Gallagher & Kennedy, P.A. my former law firm, say to a young G & K lawyer in jest, “Jim, you aren’t completely worthless. You can always be used as a bad example.” What we have here is the perfect bad example caused by the failure to plan.

The two men (who I will call Bob and Jim) were involved with a single member LLC I will call World Wide Widgets, LLC (WWW) owned by Jack, a single man with no children. Over a period of years Bob loaned several hundred thousand dollars to the LLC without any documentation. Bob and Jim agreed orally that as part of the loan the WWW would pay Bob interest plus a share of the substantial profits of WWW. Jim was the primary person who ran the company on a day to day basis.

The company was very successful and making big bucks because it had a very valuable contract with a nationally known company that had a fabulous online business. Everybody was very happy with the company and the money and profits they received from the highly successful WWW. Jack told Bob and Jim that he was going to give them part ownership of WWW.

Unfortunately Jack died without warning and all hell broke loose because the parties made the following fundamental mistakes:

No Loan Documents. Bob did not document his loan to WWW with a promissory note. Nor did he secure payment of the note with a lien on WWW’s assets. Bob cannot enforce his loan without going to court or making a deal with Jack’s heir, both of which are expensive courses of action best to be avoided.

No Option to Acquire Membership Interests. Bob and Jim did not get Jack to sign a contract that provided they had a right to become members of WWW. Nor did they push Jack to actually transfer partial ownership of WWW to them. If Bob and Jim had entered into an option to acquire membership interests in WWW they would have been able to become members without the need to sue (a difficult case to prove) or making a deal with Jack’s heir. If Bob and Jim had been members of WWW they would have been wise to have entered into a Buy Sell Agreement with Jack that would have given WWW and themselves an option to buy Jack’s membership interest in WWW from Jack’s heir after death. The purpose of a Buy Sell Agreement is to allow ownership of an LLC to be retained in the hands of the LLC members in the event a member dies. To learn more about Buy Sell Agreements see my website on this important topic.

No Employment Agreement. Jim did not have an employment agreement signed by WWW. Without an employment agreement Jim’s job and compensation was at the mercy of Jack’s heir.

No Estate Plan. Jack did not have a Will or a Trust that provided who inherited WWW after his death. Jack’s only living relative was an estranged sister with whom he had not had any contact for years. Bob and Jim believe that Jack would have wanted them to inherit WWW, not his estranged sister. Because Jack died without an estate plan, the State of Arizona’s estate plan determined who inherited Jack’s assets. Because Jack was single, had no children and his parents were deceased, his entire estate was inherited by the estranged sister who didn’t give a hoot about Bob and Jim and their failure to get signed documents. To learn more about Arizona Wills, Trusts, estate planning and how to give your family asset protection see my website called Arizona Wills & Trusts.

The end result was not pretty, but it was a very expensive lesson from which I hope others can learn.

Lessons to Be Learned

1. People die.

2. People die. I repeated this lesson because the reality of life is that few people believe this is a true statement. This is the conclusion I have reached after 32 years as a business lawyer who has formed 9,300+ companies, the vast majority of which none of the members took action to make life easier on their loved ones and co-members while alive.

3. Document with signed agreements all transactions involving your LLC. These transactions include promissory notes (with a resolution of members authorizing the loan), employment agreements, independent contractor agreements, options to purchase membership interests in the LLC and a Buy Sell Agreement signed by all of the members.

4. If you have an ownership interest in an LLC or a corporation, sign a Will or a Trust that provides who will inherit your interest in the companies when you die.

Hire Us

If you need to document a transaction or provide for the orderly transfer of your companies and other assets on your death, call me, Richard Keyt (480-664-7478) or my son Arizona LLC and estate planning attorney Richard C. Keyt (480-664-7472). Do it now. Don’t procrastinate until it’s too late and you become a bad example like Bob, Jim and Jack. To learn more go to Arizona Wills & Trusts.

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Richard Keyt2019-06-15T07:29:32-07:00August 11th, 2013|Buy Sell Agreements, FAQs, Members|1 Comment

Why Should I Purchase Your Buy Sell Agreement Instead of Getting a Free Buy Sell Agreement on the Internet?

Question: “We will be wanting a buy-sell agreement since none of the members of the LLC are related. However, after doing some research online it seems as though there are many customizable template type versions available for free. My question to you is concerning your pricing. You charge $500 for your Buy Sell Agreement when you form the LLC, yet it seems after reading through it all that it is just a template that you give everyone that purchases it and we essentially change it according to our needs (very similar to the free ones available online). Can you help me understand where the value is with your buy-sell agreement when purchasing with the LLC startup?

Answer: My Buy Sell Agreement is the product of my 31 years of experience as a business lawyer forming thousands of companies and dealing with the problems that arise between members/owners. It started as a limited partnership agreement I first created in the early 1980s. When Arizona adopted its LLC laws, I modified my limited partnership agreement to be an Operating Agreement for AZ LLCs. In the early 2000s I made substantial revisions to my standard LLC Operating Agreement that was about 45 pages and also created an Operating Agreement / combined Buy Sell Agreement that was about 90 pages long. During January and February of this year I spent over 40 hours splitting my 90 Operating Agreement with buy sell provisions into two separate documents – the Operating Agreement and the Buy Sell Agreement. I did a lot of research including buying Howard Zaritsky’s book called “Structuring Buy-Sell Agreements: Analysis with Forms” for $295. I incorporated a lot of his content into my new 35 page Buy Sell Agreement. You can purchase the book here.

I’m sure I have spent over 200 hours on my Buy Sell Agreement over the last 31 years. Most attorneys would charge $1,500 to $3,000 for a Buy Sell Agreement that would not be as good as mine. I can charge less because I use automatic document assembly software to create my documents and I do a high volume. Most business attorney’s don’t do one Buy Sell Agreement a month. I’ve spent over $30,000 over the years on professional programming of my automatic document assembly templates.

My Buy Sell Agreement does have optional language that the members must pick. For example, there are six different ways to value the interest of a selling member. Your members must read the six methods and decide which method is best for the group. The group may want to modify their selection. How many valuation options do you think you will get from your free form? Will it contain drag along and tag along provisions? Is the free or cheap form you get from the internet Arizona state law specific? If you needed surgery, would you want a doctor to do it or somebody who doesn’t tell you their name or experience and who advertises on the internet that they do free or cheap surgeries?

You have two clear choices:

Get something free or cheap from a source you don’t know anything about or know the experience of the creator of the document that may or may not be drafted to comply with Arizona law, or
Purchase a document prepared by a 31 year Arizona business lawyer for such a small amount of money that if your group cannot afford it then maybe it should not go into business together.

Richard Keyt2011-10-05T20:03:45-07:00May 19th, 2011|Buy Sell Agreements, FAQs|0 Comments