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A Guide to a Buy Sell Agreement for LLCs

  • Parkview Partners Capital Management
  • Sep 23
  • 2 min read

A buy-sell agreement for an LLC is often called a “business prenup.” It’s a legally binding contract that outlines what happens if a member leaves the company—whether due to retirement, disability, death, divorce, or another major life event.


Creating this document while all members are on good terms provides a clear plan for ownership changes and protects both the company and each partner’s investment.


Why Your LLC May Benefit from a Buy-Sell Agreement


Without a buy-sell agreement, your LLC could be subject to default state laws. These may unintentionally force you to accept heirs, ex-spouses, or even strangers as partners.


A customized agreement is designed to help ensure:


  • Continuity of business operations

  • Fair valuation and payout for departing members or their families

  • Protection of ownership control among existing partners


Key Events That Trigger a Buy-Sell Agreement


The agreement specifies “triggering events” that initiate a buyout. Common examples include:


  • Death or disability of a member

  • Retirement

  • Divorce settlement

  • Personal bankruptcy

  • Voluntary or involuntary departure


Defining these events in advance reduces uncertainty and keeps the business running smoothly.


Protecting Each Member’s Stake


A buy-sell agreement isn’t just defensive—it’s proactive. It provides:


  • A fair valuation method (fixed price, formula, or appraisal)

  • A measure of security for departing members or their families

  • Continuity of ownership for the remaining members


This process can help safeguard both the company’s stability and personal financial outcomes.


Structuring the Agreement


There are two primary structures:


  1. Cross-Purchase Agreement – Remaining members personally purchase the departing member’s share, often funded through life insurance policies.

  2. Redemption Agreement – The LLC itself buys back the departing member’s share, which is often simpler for larger groups.


Each structure has different tax, funding, and administrative implications.


Funding the Buyout


Even the strongest agreement fails without a clear funding plan. Options include:


  • Life and disability insurance policies

  • Installment payments over time

  • Dedicated company sinking funds

  • Third-party financing


Having these mechanisms in place ensures the buyout process doesn’t drain company resources.


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Final Thoughts


A buy-sell agreement is one of the most important planning tools for LLC owners. It transforms unexpected or difficult moments into a structured process, providing security for all parties and helping the business continue without disruption.



Disclosure


Investment advice offered through Stratos Wealth Partners, Ltd., a registered investment advisor. Stratos Wealth Advisors, LLC and Parkview Partners Capital Management are separate entities. This article is for informational purposes only and is not intended as investment, legal, or tax advice. Please consult with your professional advisors before taking any action. Past performance is not a guarantee of future results. To discuss how these strategies might apply to your specific situation, contact Parkview Partners Capital Management for a personalized consultation.


 
 
 

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Financial Advisor, Investment Advisor, High Net Worth, Wealth Management, Tax Planning, Risk Management, Financial Coordination, Retirement Planning, Charitable Giving, Columbus Ohio, Parkview Partners Capital Management

291 East Livingston Ave.
Columbus, OH 43215


Phone: (614) 427-2132

Fax: (614) 427-2132

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