An event such as death, dis­abil­ity, expul­sion, or deci­sion to quit will either trig­ger an option to pur­chase, a right of first refusal, or the right to force a sale. The party with this right will then need to give notice of their deci­sion to exer­cise that right. This means they’re going to buy the other owner’s inter­est. But where do these peo­ple or the com­pany get the money to buy the interest?

Cash is one option. But that means that the com­pany needs to keep cash on hand or that an owner needs to have enough cash to pay for the inter­est. Another option is a loan. But that assumes that the com­pany or owner can get one. And who knows what inter­est rates will be like. The final option is owner financ­ing. The owner buy­ing the inter­est agrees to make a down pay­ment (nor­mally 20% to 30%) and then pur­chase the remain­ing amount in install­ments (nor­mally three to five years).

There are other options for the events of death and dis­abil­ity. The com­pany or each mem­ber may buy life insur­ance poli­cies on each other to pur­chase the deceased member’s inter­est. The com­pany or its own­ers may also buy a dis­abil­ity insur­ance pol­icy on its own­ers. You’ll need to con­sider things such as the pol­icy amount, the age of the own­ers, and var­i­ous types of poli­cies. You’ll also need to con­sider the tax con­se­quences of your deci­sion. The same con­sid­er­a­tion applies to dis­abil­ity insur­ance which may cover the cost of a buy­out when an owner is con­sid­ered disabled.