Some­times events such as death, dis­abil­ity, a lost license, and early retire­ment change things. The own­ers and the com­pany can respond to these changes by cre­at­ing a right, but not the oblig­a­tion, to force a buy­out of the deceased owner’s estate, the dis­abled owner, the owner whose license was sus­pended or revoked, or the retired owner.

Death

When an owner dies, the owner’s spouse, chil­dren, or whomever else is the ben­e­fi­ciary of their inter­est becomes the new owner. The remain­ing own­ers may not want to be in busi­ness with this new owner. In that case, the remain­ing own­ers and the com­pany will want to have the option to pur­chase the new owner’s inter­est. This should be an all or noth­ing proposition.

On the flip side, the own­ers may want to give a right to the deceased owner’s spouse, chil­dren, or whomever else is a ben­e­fi­ciary to force a sale of their inter­est on the owners.

Dis­abil­ity

Active own­ers need each other to run the busi­ness. If an owner becomes dis­abled with a chronic ill­ness or injury, then the active own­ers have to shoul­der the extra weight of the dis­abled owner. The active own­ers might not be able to sup­port the dis­abled owner. The own­ers and com­pany may want to give each other the option to pur­chase a dis­abled owner’s inter­est to account for this change.

The own­ers will define dis­abil­ity, des­ig­nate the party who declares a dis­abil­ity, and deter­mine the length of the dis­abil­ity before the option is trig­gered. If the active own­ers or com­pany exer­cise this right, they will be able to replace the dis­abled owner or con­tinue the busi­ness with­out the dis­abled owner.

Lost License

Some busi­nesses such as pro­fes­sional firms require licensed own­ers. Some busi­nesses depend on licensed own­ers even though a licensed owner is not required. If an owner loses his or her license, the other own­ers or com­pany may want to have the right to buy the unli­censed owner’s inter­est at a dis­counted price because it might affect the value of the company.

Retire­ment

Some active own­ers may want to retire or quit work­ing for the com­pany. This might cre­ate ten­sion between the retired owner and the active own­ers who are now car­ry­ing the weight of run­ning the com­pany. The own­ers may want to give each other and the com­pany the right to pur­chase the inter­est of any owner who chooses to retire or quit.

Divorces

The courts have a right to divide mar­i­tal prop­erty. This includes an owner’s inter­est in the com­pany. This means you might end up with an ex-spouse as an owner in your com­pany. The own­ers or the com­pany may force an ex-spouse to sell his or her inter­est if the spouse signs the buy-sell agree­ment with this right. If you don’t want to bother with get­ting the spouses of the own­ers to sign this agree­ment, you can always take your chance that an owner will not get divorced or that the judge will give the full inter­est to the owner and none to the ex-spouse.

Bank­ruptcy

If an owner files for bank­ruptcy, the bank­ruptcy trustee can get the bank­ruptcy owner’s inter­est in the com­pany, then sell it to pay off cred­i­tors. In extreme cases the bank­ruptcy trustee can exer­cise the rights of the bank­rupt owner and sell the company’s assets or liq­ui­date the com­pany alto­gether to pay off cred­i­tors. The own­ers can agree that an owner who is about to file bank­ruptcy must pro­vide notice to the other own­ers before fil­ing for bank­ruptcy to give the other own­ers time to struc­ture and force a sale of the bank­rupt owner.

Pledges

A pledge is an owner’s use of his inter­est in the busi­ness as col­lat­eral on a loan. If he defaults on the loan, then the bank takes the inter­est. The own­ers may pro­hibit pledges, require con­sent for a pledge, or require the right to pay off the loan and take back the owner’s pledged interest.

Expul­sion

Some­times own­ers do bad things such as abuse drugs or alco­hol, embez­zle, or exhibit dis­turb­ing behav­ior. In these cases the other own­ers will want the option to expel the mis­be­hav­ing owner and buy his inter­est at a dis­counted price.