One important issue that individuals organizing a new business entity must consider is what will happen in the event one of the owners wants to voluntarily withdraw from ownership in the entity. By “withdraw”, we mean that the owner wishes to return the ownership interest (stock for a corporation or membership interest for a limited liability company) to the company or to the other owners in exchange for some form of compensation. This issue is commonly overlooked in the organizing process, perhaps because the ambitious and optimistic organizer is not mindful of the fact that one day he/she may want to leave. As a result, many new entities do not enter into written agreements dealing with this important issue.
It is essential that the owners consider this issue as part of the organizing process. Some common reasons for an owner wanting to withdraw are the following:
1. Disagreement with the business direction of the entity;
2. A falling out with the other owner(s);
3. Relocation, medical problems or other personal reasons;
4. Desire to cash in the investment or the need for money.
The place to insert a withdrawal provision for a limited liability company is the company’s operating agreement. For a corporation, it is a shareholder agreement. Here are a few common ways to handle a voluntary withdrawal:
Showing posts with label owners. Show all posts
Showing posts with label owners. Show all posts
Tuesday, September 27, 2011
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