In 2010, Anthony and Jennifer Tiberia opened a restaurant business in partnership with another couple. The responsibilities of each partner seemed simple enough: one couple managed the business by handling the day to day operations while the Tiberias funded the venture by putting up half the money. Less than a year later, relations between the partners went sour and the Tiberias looked for a way out.
Luckily for them, their operating agreement contained a clause that would keep their business going. The couple discovered a buyout clause that explained how they could force their partners to sell their interest in the restaurant. Now the Tiberias are running their restaurant solo and considering opening two more restaurants.
Every business should have a written agreement detailing how its owners will make financial and functional decisions. According to the Small Business Bureau (SBA), the purpose of the operating agreement is to guide the internal operations of the business according to the needs of its owners. Once signed, the operating agreement is a legally binding contract that can be enforced in court or through mediation.
A buyout clause is essential to almost any business partnership agreement. This provision allows you to plan ahead for changes in ownership in business. In the event that a partner dies, divorces, or just wants to leave the business, the buyout clause determines how the departing partner’s interested is divided. The clause also determines when and how new partners can join the business.
Do not put your business at risk; consult with The Reddy Law Firm, P.C to discuss your business formation, planning and litigation options.