Buy/Sell Agreement in LLC

[Jason Meyers]

Morning All!

I'm excited to say that I have taken the first steps to purchase my first rental property with another investor in my area. We are purchasing two rental homes in the area under a LLC. Has anyone personally had to form a buy or sell agreement or do you usually want an attorney to do this? I understand the point of this agreement, but not sure how we would split assets or what our portion of the LLC would be worth if someone wants to sell their portion of the business. Also, is it necessary to have an Operating Agreement with only two people in the LLC?

Any help or guidance would be appreciated!

Jason Meyers

[Bill Gulley]

Upon the dissolution of a company or partnership there are specific state laws as to the disposition of assets and the payment of liabilities, in other words much of this is covered by state law, at issue is when there is disagreement and that usually results in taking legal action to resolve issues. 

That is what a buy-sell agreement attempts to circumvent, there are business and life occurrences that trigger state laws, such as death or bankruptcy.  The buy-sell agreement can be made to avoid some of the state requirements, like how to value assets or who pays what liability, so long as there is an agreement to the contrary and it doesn't violate law.

You should also see an account (CPA) as to such matters as you can have tax consequences and they can help address the valuation of assets, for example using book value or having an appraisal or even using two appraisals and averaging values when value is disputed. 

Unless you want you're partner's wife or parents to be your next business partner I'd suggest the buy-sell be done and incorporated in your Operating Agreement.

So, yes, it sounds like in your case you need to see an attorney!  Good luck :)  

Edited: Yes, you need an Operating Agreement and a separate business bank account!