Triggering and enforcing buyout provisions for LLCs and closely-held corporations.
Buy-sell agreements govern what happens when an owner leaves a business - voluntarily or not. When a trigger event occurs and the other party won't honor the agreement, a demand letter establishes your rights and forces a response.
Common trigger events: Death, disability, retirement, voluntary resignation, termination for cause, divorce, bankruptcy, breach of non-compete, deadlock, or reaching a specified age.
Financial statements for valuation periods referenced in agreement
Life insurance policies (if applicable)
Prior correspondence about the buyout
Timeline showing compliance with notice requirements
Demand Letter Structure
1. Identify the Trigger Event
"As you are aware, on [date], [describe trigger event - e.g., John Smith submitted his written resignation as an employee of ABC Company, LLC / Mary Jones was determined to be permanently disabled by her physician / the divorce between Tom Brown and Jane Brown was finalized].
Under Section [X] of the Buy-Sell Agreement dated [date], this event triggers the mandatory buyout provisions."
2. Show the Math
"The Buy-Sell Agreement provides that the purchase price shall be determined by [quote valuation provision]. Based on this formula:
- Trailing 12-month EBITDA (per 2024 financial statements): $[amount]
- Multiple specified in Agreement: [X]x
- Resulting enterprise value: $[amount]
- Less: Outstanding debt per Agreement: $[amount]
- Equity value: $[amount]
- [Departing Owner]'s [X]% interest: $[amount]
Alternatively, if appraisal is required, I request that we immediately proceed to select an appraiser in accordance with Section [X]."
3. Specify Closing Logistics
"The Agreement provides for closing within [X] days of the trigger event. I propose the following closing logistics:
- Closing Date: [date, within contractual period]
- Location: [address] or via electronic signing
- Payment: [Wire transfer / Certified check / Installment per Agreement terms]
- Documents: I will prepare and deliver: [list - stock certificates, membership interest assignment, resignation letters, releases]
Please confirm your agreement with these logistics or propose alternatives within [10] business days."
4. Leave Negotiation Room
"While I believe the above calculation accurately reflects the Agreement terms, I remain open to discussing any legitimate concerns about the valuation or closing process. If you believe a different interpretation applies, please provide your analysis in writing so we can attempt to resolve any disagreement without litigation."
5. Reserve Rights
"If I do not receive a response within [14] days, or if [Company/you] refuse to honor the Buy-Sell Agreement, I will have no choice but to pursue specific performance and damages through litigation. In that event, I will seek not only the purchase price but also interest from the required closing date, attorneys' fees if permitted by the Agreement, and any other available remedies.
This letter is not intended to waive any rights, claims, or defenses, all of which are expressly reserved."
Special Situations
Shotgun Clause Invocation
"Pursuant to Section [X] of the Operating Agreement, I hereby invoke the buy-sell provisions and offer to purchase your [X]% membership interest for $[amount], representing a total company valuation of $[amount].
Under Section [X], you have [30] days from receipt of this notice to elect to either:
(a) Accept my offer and sell your interest to me at $[amount]; or
(b) Purchase my [X]% interest at the same pro-rata price of $[amount].
If you fail to respond within [30] days, you will be deemed to have accepted option (a).
I am prepared to close within [X] days of your election, with payment by [wire transfer]."
Responding to Shotgun Offer
If you received a shotgun offer, your options are:
Accept and sell: Take the money and exit
Reverse and buy: Purchase their interest at the same price
Challenge validity: If the offer wasn't properly made or the trigger wasn't valid
Shotgun deadlines are strict. Missing the response window typically means you've accepted the offer. Don't delay - consult an attorney immediately if you receive a shotgun notice.
Insurance Funding Issues
If life insurance was supposed to fund the buyout but is insufficient or lapsed:
The buyout obligation still exists - insurance was just the funding mechanism
Remaining owners may need to fund from operations, borrow, or pay in installments
May have claims against whoever was responsible for maintaining insurance
Need to Enforce a Buy-Sell Agreement?
I help business owners enforce buyout provisions and resolve valuation disputes. Let's discuss your situation.