PARTNER BUYOUT AGREEMENT, A STARTING TEMPLATE Growing Partners (growingpartners.org) This is general information, not legal or tax advice. It is a one-time purchase agreement for buying out a partner or member who is leaving now, distinct from a buy-sell agreement, which is signed in advance to govern a future triggering event (see the Buy-Sell Agreement template and article on this site). If the partners already have a buy-sell agreement or an exit clause in their partnership or operating agreement, that document's valuation method and process control, and this template should be used to carry it out rather than to replace it. Every bracket needs a decision, the purchase price needs a number only the partners' own agreement or an appraiser can supply, and a lawyer and a tax adviser, both licensed in the partners' state, should read the finished document before anyone signs it or money changes hands. Confirm with counsel whether the non-solicitation section is enforceable in the partners' state before relying on it: a handful of states, including California, Minnesota, North Dakota, Oklahoma and Wyoming, restrict or ban these covenants outright, and most other states limit them by scope, duration or consideration. PARTNER BUYOUT AGREEMENT This Partner Buyout Agreement ("Agreement") is entered into as of [DATE], by and among [COMPANY NAME], a [STATE] [entity type] (the "Company"), [REMAINING PARTNER(S)/MEMBER(S) NAME(S)] (the "Buyer(s)"), and [DEPARTING PARTNER/MEMBER NAME] (the "Seller"). RECITALS The Seller owns [PERCENTAGE]% of the ownership interests in the Company (the "Interest"). The Seller wishes to sell, and the Buyer(s) wish to purchase, all of the Seller's Interest, and the parties wish to record the terms of that purchase and the Seller's departure from the Company. 1. DEFINITIONS "Interest" means all of the Seller's ownership interest in the Company, including every right to profits, losses, distributions, votes and management. "Closing" means the completion of the purchase under Section 6. "Closing Date" means [DATE], or such other date as the parties agree in writing. "Purchase Price" means the amount determined under Section 3. 2. SALE AND PURCHASE OF THE INTEREST At Closing, the Seller shall sell, assign and transfer the Interest to the Buyer(s), free and clear of all liens, claims and encumbrances except as disclosed on Exhibit A, and the Buyer(s) shall purchase the Interest for the Purchase Price, paid as Section 4 provides. 3. PURCHASE PRICE The Purchase Price for the Interest is: [OPTION A: the price set by the Company's buy-sell agreement or operating agreement, dated [DATE], calculated as [RESTATE THE FORMULA HERE FOR REFERENCE].] [OPTION B, WITH NO PRIOR AGREEMENT ON PRICE: $[AMOUNT], as agreed directly by the parties.] [OPTION C: the value determined by an independent business appraiser (ASA, ABV or CVA credentialed) selected by agreement of the parties, or, if they cannot agree on one appraiser within [NUMBER] days, by the average of one appraiser chosen by each side and a third those two appraisers select, measured as of [VALUATION DATE] under the [FAIR MARKET VALUE / FAIR VALUE] standard.] [ABSENT ANY AGREEMENT, STATE PARTNERSHIP LAW TYPICALLY VALUES A DEPARTING PARTNER'S INTEREST AT WHAT WOULD HAVE BEEN DISTRIBUTABLE HAD THE PARTNERSHIP'S ASSETS BEEN SOLD, AS A GOING CONCERN, AND THE PARTNERSHIP WOUND UP ON THE DEPARTURE DATE (UNIFORM PARTNERSHIP ACT (1997) SECTION 701(b)); CONFIRM WHETHER THE PARTNERS' STATE HAS ADOPTED THAT RULE OR ITS OWN.] 4. PAYMENT OF THE PURCHASE PRICE 4.1 At Closing. [NUMBER]% of the Purchase Price is paid in cash at Closing. 4.2 Promissory note. The balance, if any, is paid under a promissory note in the form of Exhibit B, bearing interest at not less than the applicable federal rate in effect when the note is signed, in [NUMBER] equal monthly installments of principal and interest, with the first payment due [NUMBER] days after Closing. 4.3 Prepayment. The note may be prepaid in whole or in part at any time without penalty. 5. SECURITY FOR THE NOTE The Buyer(s)' obligations under the note are secured by [A SECURITY INTEREST IN THE REPURCHASED INTEREST, EVIDENCED BY A SECURITY AGREEMENT AND, WHERE THE INTEREST IS IN AN LLC, A UCC-1 FINANCING STATEMENT / A SECURITY INTEREST IN SPECIFIED COMPANY ASSETS / THE PERSONAL GUARANTY OF [NAME(S)], IN THE FORM OF EXHIBIT C]. [IF THE BUYOUT IS PARTLY FUNDED BY AN SBA 7(a) LOAN: Any note under this Section is subordinate to the SBA loan and, consistent with SBA requirements, may be placed on full standby, with no payments of principal or interest, for at least the first 24 months of that loan's term.] 6. CLOSING; CLOSING DELIVERABLES Closing takes place on the Closing Date at [LOCATION, OR "remotely by exchange of signed documents"]. At Closing: (a) the Seller shall deliver an assignment of the Interest in the form of Exhibit D, and shall resign from every office, management position and signing authority held in the Company, effective as of Closing; (b) the Company shall deliver the promissory note and any security documents required by Sections 4 and 5; (c) the parties shall sign an amended partnership statement, amended operating agreement, or amended certificate (as applicable) removing the Seller as a partner or member, for filing with the [STATE] Secretary of State where the Company's formation document names the Seller; (d) the Company shall deliver payoff or release documentation for any loan, guaranty or lease obligation the Seller personally carries on the Company's behalf, or, where a release cannot be obtained by Closing, an indemnity from the Company and the Buyer(s) in the form of Exhibit E covering that obligation until it is released or paid in full; (e) the parties shall deliver the mutual releases required by Section 9; and (f) the Company shall deliver any tax forms required by Section 12, including a statement under Internal Revenue Code section 1.751-1(a)(3) if the Interest includes a share of the Company's unrealized receivables or substantially appreciated inventory. 7. SELLER'S REPRESENTATIONS The Seller represents that: the Seller owns the Interest free and clear of all liens and encumbrances except as disclosed on Exhibit A; the Seller has not transferred, pledged or agreed to transfer any part of the Interest to anyone else; and, to the Seller's knowledge, the Company has no liability not reflected on the financial statements delivered under Exhibit F, other than in the ordinary course of business since the date of those statements. 8. BUYER(S)' AND COMPANY'S REPRESENTATIONS The Buyer(s) and the Company represent that they have the authority to enter into this Agreement and that the funds for the cash portion of the Purchase Price are available as of the date of this Agreement. 9. MUTUAL RELEASES Effective at Closing, the Seller, on one hand, and the Company and the Buyer(s), on the other, each release the other from every claim arising out of or relating to the Seller's ownership of the Interest or role in the Company, known or unknown, through the Closing Date, except for: (a) claims arising from fraud or willful misconduct; and (b) each party's obligations under this Agreement, the note, and any security or indemnity document delivered under Section 6. 10. NONCOMPETITION AND NONSOLICITATION [OPTIONAL, AND UNENFORCEABLE OR RESTRICTED IN SOME STATES: For [NUMBER] months after Closing, within [GEOGRAPHIC AREA], the Seller shall not (a) engage in a business competing with the Company's business, or (b) solicit the Company's customers or employees. Confirm enforceability under the law of the state where the restriction would be enforced, and the consideration required to support it in that state, before including this section.] 11. CONFIDENTIALITY The Seller shall keep confidential, and not use for the Seller's own benefit or any third party's, the Company's non-public business, financial and customer information, both before and after Closing. 12. TAX MATTERS The parties intend that the purchase of the Interest be treated consistently with sections 741, 751 and 736 of the Internal Revenue Code, as applicable, depending on whether the Interest is purchased by the Company (a liquidating distribution under section 736) or by the Buyer(s) individually (a sale under section 741). Where the Interest includes a share of unrealized receivables or substantially appreciated inventory, the parties shall file the statement section 751 and its regulations require. This Agreement is not tax advice; each party should consult that party's own tax adviser before Closing. 13. CONDITIONS TO CLOSING Each party's obligation to close is conditioned on the other parties' representations in Sections 7 and 8 being true as of the Closing Date and on delivery of the items required by Section 6. 14. DISPUTE RESOLUTION A dispute over the Purchase Price under Section 3, other than an appraisal process the parties have agreed to there, or over any other term of this Agreement, shall be submitted to mediation under the rules of [PROVIDER] before either side may file suit, [OPTIONAL: and, if mediation does not resolve it within [NUMBER] days, to binding arbitration under the rules of [PROVIDER]]. 15. MISCELLANEOUS This Agreement binds and benefits the parties' heirs, personal representatives and permitted assigns. It may be amended only in writing signed by all parties. It is governed by the laws of the State of [STATE]. Except as Section 3 provides for a price set by a prior buy-sell or operating agreement, this Agreement supersedes every prior agreement between the Seller and the Company or the Buyer(s) on the subject of the Seller's departure and the sale of the Interest. IN WITNESS WHEREOF, the Company, the Buyer(s) and the Seller have signed this Agreement as of the date first written above. ___________________________ ___________________________ [COMPANY NAME], by its authorized [SELLER NAME] representative Date: ______________ Date: ______________ ___________________________ [BUYER NAME] Date: ______________ Exhibits (attach separately): A, disclosed liens on the Interest; B, form of promissory note; C, form of personal guaranty, if used; D, form of assignment of interest; E, form of indemnity for unreleased obligations, if used; F, financial statements referenced in Section 7.