When Does a Company’s Purchase Option in a Buy-Sell Agreement Become Mandatory?

Delaware Chancery Court Opinion Likens it to a Call Option


Was the selection of the first appraiser and obtaining his result a revocable offer on the part of the Company pursuant to the buy-sell portion of the operating agreement? Was it okay to withdraw the “offer” prior to the time that Plaintiffs had accepted it? This was the Company’s basic argument. Or was the selection of the first appraiser by the Company a binding acceptance of the implicit call option that the Plaintiffs had negotiated at the time the operating agreement was signed? This was the Plaintiffs’ argument. Read this post to see what Vice Chancellor McCormick of the Delaware Chancery Court concluded.

A Quirk with Third Appraisers in Buy-Sell Agreement Valuation Processes


The role of the third appraiser is always to bring resolution to buy-sell agreement valuation processes. The question is how the third appraiser’s conclusion will be used to bring pricing resolution. In this post we see that one “typical” way of considering the third appraiser’s conclusion has in interesting and potentially dangerous twist for valuation processes.

The Buy-Sell Agreement That Might Never End


Recently, I was involved, for a moment, in a buy-sell agreement valuation process that had many issues. A key executive in a company was terminated. He owned about 15% of a profitable operating company, and his firing triggered the company’s buy-sell agreement provisions in its operating agreement. This was a buy-sell agreement that was virtually destined to fail unless the parties agreed to a change in the process.

New York Supreme (Trial) Court: One Buy-Sell Agreement That’s So Broke It Likely Can’t be Fixed


Buy-sell agreements can go bad if all parties to them do not pay attention to their terms before signing them. This is particularly true in the New York case of Yakuel v Gluck, which was filed in early May in the Supreme Court of New York County.

Indiana Court of Appeals: No Discounts in Unclear and Mandatory Shareholder Agreement Buyout


The Indiana Court of Appeals reversed a trial court decision, concluding that valuation discounts in an unclear buy-sell agreement were appropriate even in light of the mandatory nature of the buyout. In other words, the agreement created a market and the trial court ignored this fact. This is an interesting case and yet another example of why valuation processes in buy-sell agreements must be carefully drafted to avoid such debacles when trigger events inevitably happen.

The “Words on the Pages” of Every Buy-Sell Agreement Matter


I have long used the term of “words on the pages” of buy-sell agreements to relate to those usually too few words that describe the valuation processes called for by the agreements. A typical agreement will devote 150-200 words to attempt to describe a multiple appraiser valuation process. It is not possible to do so. There are too many things that have to be described or defined. In this video, I talk about the defining elements of any buy-sell agreement valuation process and the need for clarity in the “words on the pages” to assure reasonable processes when agreements are triggered. I also state that I have a new book in the process of finishing that will provide draft “words on the pages” that have a good chance of working. Attorneys, business appraisers, and other advisers to business owners will want this book!

Failure to Reach Annual Agreement on Buy-Sell Agreement Pricing Leads to Litigation for Ohio Insurance Agency

Kashmiry v. Ellis Highlights Importance of Recurring Appraisal for Buy-Sell Agreements


Kashmiry v. Ellis is a recent Ohio appellate case regarding the buy-sell agreement portion of a shareholders’ agreement. The case reinforces a number of things I have been “preaching” about for years. If a buy-sell agreement has provided for an annual valuation by agreement of the parties, then the parties must reach agreement annually. If the agreement then provides for a valuation mechanism to determine the price following a trigger event, then the valuation process should be clearly defined and workable.

The Seven Defining Elements for Valuation in Buy-Sell Agreements (Video and Text)


I have read too many buy-sell agreements to count. The typical valuation process in them (for appraisals following trigger events) range from 150 words to perhaps 300-400 words. That simply is not enough “wordage” to describe or define any valuation process, much less an appraisal. I started focusing on the seven defining elements over the years as I experienced problems with each and every one of them in troubled or litigated valuation processes where I was either an appraiser or a consultant. Do your clients’ buy-sell agreements adequately define the seven elements? Or does your company’s agreement do the same? If they are not clear in an agreement, future trouble is almost certainly lurking.

The Meaning of Fair Market Value for Buy-Sell Agreements (Video and Text)


The standard of value of fair market value is very familiar to attorneys and appraisers and often the subject of apparent disagreement. This post looks at the standard definition of fair market value and then breaks it down into its component parts as they relate to hypothetical willing buyers and sellers. Fair market value occurs at the intersection of negotiations between these two sets of hypothetical parties. First, we must understand the meaning of fair market value. Next, we must ask the follow-up question: the fair market value of what? We investigate the relationship of the definition of fair market value and the asset(s) to which the definition pertains.