SBO Agreement: What You Need to Know
An SBO agreement, also known as a shareholder buyout agreement, is a legal contract between business partners or shareholders that outlines the conditions for one party to buy out the other`s shares in the company. This agreement is essential for businesses to have in place, especially in the event of a disagreement or dissolution of the partnership.
Why is an SBO Agreement Important?
Having an SBO agreement in place ensures that all parties involved in the business understand their obligations and responsibilities. It offers clarity on how shares will be transferred in the event of a dispute or dissolution of the partnership. Without an SBO agreement, a partner`s shares may be sold to an outside party or divided among remaining shareholders, which may not be the best outcome for the business.
The agreement also sets the terms for the purchase price of shares, which can prevent disagreements over the value of the company. This way, if one party decides to leave the business, the remaining partners can buy their shares at a predetermined price, preventing any confusion or disputes.
What Should be Included in an SBO Agreement?
An SBO agreement should cover several key components, including:
1. Purchase Price: The agreement should outline the purchase price for the shares of the leaving partner. This can be determined by a valuation method, such as book value, market value or a third-party appraisal.
2. Payment Terms: The agreement should outline the payment terms, including how the purchasing partner will pay for the shares. Common payment methods include lump sum payments, installment plans, or promissory notes.
3. Triggering Events: The agreement should specify the triggering events that would require a buyout, such as the death, disability, or retirement of a partner.
4. Non-competition Clauses: The agreement should outline any non-compete clauses or clauses that prevent the leaving partner from starting a similar business.
5. Alternative Dispute Resolution: The agreement should include dispute resolution clauses, such as mediation or arbitration, to avoid costly lawsuits.
6. Succession Planning: The agreement should outline the succession plan for the business, including who will take over the shares of a leaving partner.
An SBO agreement is an important legal contract for businesses to have in place to ensure that all parties understand their obligations and responsibilities in the event of a partner leaving the business. This agreement can prevent confusion and disputes while ensuring the smooth transition of shares. If you`re a business owner, it`s crucial to work with a lawyer to create an SBO agreement that works for your specific business.