A Kentucky business can have multiple shareholders who have ownership interests in the entity. From time to time, though, those shareholders may leave the business and need to divest themselves of the ownership rights and shares that they hold in the business. A buyout agreement is a contract that dictates the terms by which a shareholder may sell off their business shares and states whether the business itself has a right to buy the shares back.

For example, consider a business that has three shareholders. The business operates under this structure for years, until one of the shareholders decides that they no longer wish to be affiliated with the entity and wants to sell their shares to divest themselves of ownership. If the shareholder and the business have a buyout agreement in place, they will know if the business must buy back the shareholder’s interests, if the shareholder can sell their interests to a third party, or how the shareholder’s stake in the company may be dealt with.

Buyout agreements serve the interests of shareholders and businesses. A shareholder can, through a buyout agreement, know that they will not be forced to stay associated with a business if they want to move on. A business can protect itself from having shares sold to a questionable third party if it has the right to buy back shares from a shareholder and control the distribution and sale of its interests.

Setting up buyout agreements for a Kentucky business is an important part of protecting a business’s health and longevity. Readers who operate their own companies and business entities may wish to discuss buyout agreements with business law attorneys they know and trust.

Source: FindLaw, “Shareholder Buyout Agreements,” accessed March 14, 2018

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