Multiple owner agreements to prevent litigation (Proceedings)


Multiple owner agreements to prevent litigation (Proceedings)

Nov 01, 2010

A buy-sell agreement or shareholder's agreement or operating agreement is a written statement of plans about how owners can slow down or get out of the practice at a set time or occurrence. It is the shareholder's agreement for a corporation or an operating agreement for an LLC. It is a buy-sell agreement for a partnership. In deciding whether to continue ownership or not, the owners must decide when they want to slow down their practice work. They can decide to make slow down a planned sale and either retain control voting or not, dependant on the workload they retain. Sometimes owners want non-workers to waive their voting rights even if they want to remain an owner.

Sometimes owners want to be able to force a sale of other owners upon the occurrence of a particular event. At the time of an owner wanting out or being forced out, there also must be some methodology of how to value a practice at that sale time. The valuation methodology should be similar to the valuations being used throughout the active life of the business entity. Last but not least, because there are many different occurrences that trigger a sale, there also must be specific plans for the terms of the buy out with each of the different occurrences. These could include a cash out sale, either from financing or keyman insurance. These could include time payments with different payoff periods depending on the occurrence, and of course there will be specific interests and amortization time of sale. The above variables must be set for each and every one of the following occurrences:
For the buyer or seller to want in or to want out,
Upon disability of an owner,
Upon the marriage of an owner, specifying if there usually should be a power of attorney granted by the perspective spouse,
Upon the divorce of an owner,
Upon the death of an owner,
Upon of the bankruptcy of an owner,
Upon the retirement of an owner.

With a buy-sell agreement, it is not required that the seller stop working. It can be decided that part owners work part time or not at all and that they should still be able to get a return on their investment.

Therefore, the whole intent of the buy-sell is to provide for unexpected incident occurrences and to provide a plan to allow an owner to slow down and work part time or not work at all and still benefit from their investment.

Last but not least, each incident should have its own pay out plan for time, interest and terms. If these provisions are planned ahead, there is no reason that a retiring or exiting owner must sell his or her interest in a veterinary practice.