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Buyout Agreement

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Definition:

A Buyout Agreement is a legal agreement between the owners of a business that sets out how the future sale or buyout of an owner's interest in the business will be handled.

Typically a buyout agreement lays out when an owner can sell his or her interest in the business, who can buy an owner's interest, and what price will be paid. A buyout agreement may also stipulate whether or not a departing partner has to be bought out and what specific events will trigger a buyout.

If you are entering a business partnership, you should set up a buyout agreement when you create your partnership agreement. It can be part of your partnership agreement itself or stand alone as a separate legal document. (See 10 Questions Partnership Agreements Have to Answer.)

The buyout agreement ensures that when one partner wants to quit, becomes bankrupt, divorced, incapacitated or dies, the other partners will be able to continue to carry on the business. Without a buyout agreement, when one partner wants or has to leave, your partnership may be forced to dissolve and/or you could end up in court.

Also Known As: Buy-sell agreement.
Common Misspellings: Byout agreement, buyout agrement, buyout agreemeant.
Examples:
Because Tessa and Ian had no buyout agreement, they ended up having to go to court to decide who got how much when their business partnership collapsed.

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