Types of Buyouts
These are the most common scenarios in which buyout agreements get used:
- Business buyouts. This type of buyout occurs when an owner or member of any business entity, including a corporation, LLC, or partnership, buys the shares or interests of another owner. The language of these agreements must align with the entity’s governing document.
- Divorce buyouts. In a divorce, it’s common for one spouse to buy the other spouse’s interest in a jointly owned home or business.
- Real estate buyouts. A real estate buyout happens when a co-owner of a home wants to purchase ownership rights from another owner or other owners. These buyouts are also known as sibling buyouts because they frequently occur amongst siblings who inherit a home after a parent dies.
- Lease buyouts. When a lessor and lessee (commonly a landlord and tenant) mutually agree to terminate a lease early, they can choose to negotiate a buyout.
Buyout Agreements by Type (6)
Buyout agreements differ across contexts. Choose the agreement below that best suits your situation.
Business
LLC
Partnership
Divorce
Real Estate (Sibling)
Lease
What to Include in a Buyout Agreement
- Names and mailing addresses for both parties
- Description of the interest being purchased
- Any liens or encumbrances
- Value of interest and valuation method
- Payment terms
- Payment method
- Closing terms
- Warranties and representations
- Indemnifications
- Governing law
Buyout Agreement FAQ
What’s a disability buyout agreement?
This is a type of business buyout agreement that goes into effect if a member or owner of a company becomes permanently disabled to the extent that they can no longer participate in the operations of the business. These agreements typically state that the disability must be acknowledged in writing by a physician and that a waiting period, usually 12 months, must pass before the buyout gets triggered.
How do I value an interest in a buyout?
One means of valuing an interest in a buyout is to simply set a fixed price and write that into the buyout agreement. Another is to get the interest valued by an independent appraiser; this method is most common in business and real estate buyouts. A third is for the parties to determine a formula ahead of time. An example of this is some multiple, perhaps three, of what’s known as EBITDA (earnings before interest, taxes, depreciation, and amortization).
What happens if someone refuses to honor a buyout agreement?
If one party doesn’t honor a buyout agreement, the other signatory can sue for specific performance or damages.
Why can’t I find a template for NBA and athletic contract buyouts?
In these types of buyouts, the remainder of a contract is essentially purchased, releasing an athlete from its terms before its expiration. These buyout agreements must align with a league’s collective bargaining agreement, so they are highly specific. A player’s agent negotiates the terms of these agreements with a team’s attorneys.