19 Buy-Sell Agreement Triggering Events for LLCs

Going into business with other people is a lot like getting married. Everyone is optimistic on day one. But over half of all new businesses fail or reach a point where one or more members want a “company divorce.” If your multi-member LLC does not have a Buy Sell Agreement with a clear exit strategy, the members can be stuck together indefinitely — or stuck in business with a dead member’s heirs, an ex-spouse, or a bankruptcy trustee.

 

A Buy Sell Agreement (also called a Buyout Agreement) is a contract among the members of an LLC. It names specific events, called triggering events. When a member causes or suffers a triggering event, the LLC and/or the other members get an option — or an obligation — to buy that member’s membership interest at a price and on terms the members agreed to in advance.

In This Article

• 19 Common Triggering Events
• Other Decisions Members Make
• Frequently Asked Questions
• How to Get a Custom Buy Sell Agreement

19 Common Triggering Events

We do not use a one-size-fits-all template. The members decide which of these events to include, which to leave out, and whether to add others unique to their business.

1. Any Event the Members Desire

Your Buy Sell Agreement can include any event the occurrence of which gives the company and other members an option to buy, or requires them to buy, the membership interest of the member who suffers the event. For example, the Buy Sell Agreement could say that if Homer moves to California or marries Marge, the company or the other member has an option to buy Homer’s entire membership interest for a stated amount or an amount determined by an appraiser.

2. A Member Files for Bankruptcy

If a member files for bankruptcy, the bankruptcy trustee automatically becomes the member and the person who filed for bankruptcy ceases to be a member. Trust me: you never want to be partners with a bankruptcy trustee. The Buy Sell Agreement gives the company and other members the option, or requires them, to buy the membership interest of a member who goes bankrupt.

3. A Member Dies

If a member dies, the company or other members can have an option to purchase, or be required to purchase, the deceased member’s interest. These buyouts can be funded with life insurance on the lives of the members. Ask yourself: (i) who would inherit your partner’s membership interest if he or she died, and (ii) do you want to be partners with that person or people?

4. Married Members Divorce and the Wrong Spouse Gets Ownership

The Buy Sell Agreement can say that if Homer and Marge Simpson divorce and Marge becomes the owner of any part of the company after the divorce, the company and Homer have an option to buy all of Marge’s interest in the company. If you are married, ask yourself whether you would be OK if a divorce court awarded your spouse some or all of your membership interest. Ask the same question about the other married members. You need a Buy Sell Agreement to control who ultimately owns part of the company after a married couple divorces.

5. A Member Is Convicted of a Felony

If a member is convicted of a felony, do you want to continue to be partners with a convicted criminal? If not, you need a Buy Sell Agreement that gives the company and the other members an option or an obligation to buy the felon’s membership interest.

6. A Member Transfers a Membership Interest Without the Other Members’ Approval

Going into business with other people is a big deal. What would you do if your partner, without your knowledge or consent, transferred his or her membership interest to somebody you don’t know? A Buy Sell Agreement can give the company or other members an option to buy, or require them to buy, the interest of a third party who acquired it from a member who transferred it without the other members’ consent.

7. A Member Defaults Under the Operating Agreement

If a member defaults under the Operating Agreement, the company and other members have an option, or may be required, to buy the defaulting member’s membership interest. Do you really want to be partners with somebody who doesn’t honor his or her obligations under the Operating Agreement?

8. A Member Fails to Contribute Money or Property

This provision encourages a member to satisfy a written obligation to pay money or assign property to the company. If the member fails to satisfy that obligation, the company or other members have an option to buy out the defaulting member.

9. Termination of a Member’s Employment

This applies only to a member who is employed full time by the LLC. It is especially important when the employee is a minority member who should own an interest only while employed.

10. A Member Loses His or Her Professional License

This trigger is commonly used by LLCs owned by members who must be licensed in a particular field. For example, the Buy Sell Agreement of an LLC owned by physicians might give the LLC and other members an option to acquire the interest of a physician member who loses his or her license to practice medicine.

11. Majority Member Sells — “Drag Along” Provision

The majority member has the option to require the minority members to sell their interests in the LLC if the majority member sells. The minority members’ interests are sold on the same terms and conditions as the majority member’s interest.

12. Majority Member Sells — “Tag Along” Provision

The minority members have the option to require the majority member to include their interests in the sale if the majority member intends to sell. The minority members’ interests must be sold on the same terms and conditions as the majority member’s interest.

13. A Member Becomes Disabled

This trigger is used to acquire the interest of a member who becomes permanently disabled and unable to provide needed services to the LLC.

14. A Member Retires

Members sometimes want to retire, but without a Buy Sell Agreement that provides for a retirement purchase, it probably will not happen.

15. A Member Becomes Incompetent

This applies if a member loses his or her mental capacity and a court appoints a conservator to manage the member’s financial affairs.

16. A Member Files a False Document With the Arizona Corporation Commission

If a member causes a false document to be filed with the Arizona Corporation Commission, it is a triggering event that can cause a buyout. A common problem we’ve seen arises when members can’t get along and one of them amends the Articles of Organization on file with the Arizona Corporation Commission to remove another member without any legal basis to do so.

17. A Creditor Gets a Judgment Against a Member and Serves a Charging Order on the Company

If a member loses a lawsuit and the creditor gets a judgment against the member, the creditor can serve a charging order on the company that requires any future distributions to the member to go to the creditor. When people have creditor problems, it may not be a good idea to be in business with them.

18. A Member Disregards the Alternative Dispute Resolution Provisions in the Operating Agreement

Our Operating Agreement contains alternative dispute resolution provisions that do not allow a member to go to court to litigate a dispute. When an Operating Agreement has this type of provision, the members should have a Buy Sell Agreement that triggers an option to buy, or requires a buyout, if a member ignores the dispute resolution provision and files a lawsuit.

19. A Member Causes Somebody to Be Added to or Removed From the LLC’s Bank Account

If a member causes a signer to be added to or removed from the company’s bank account without the approval of the members required by the Operating Agreement, it is a triggering event that can cause a buyout.

Other Decisions Members Make

Choosing the triggering events is only part of designing a Buy Sell Agreement. Our custom agreement has 31+ optional clauses, including:

• Option or obligation. Does a triggering event give the LLC or other members a right to buy, or a duty to buy?
• Price. An agreed value updated each year, an appraisal, a formula, or book value — and whether discounts apply for certain events.
• Payment terms. Cash at closing or a promissory note paid over a number of years, and the interest rate.
• Funding. Whether life or disability insurance will fund the buyout.
• Who buys. The LLC, the remaining members in proportion to their ownership, or either.

Frequently Asked Questions

Does a single-member LLC need a Buy Sell Agreement?

 

No. A Buy Sell Agreement is a contract among two or more members. A single-member LLC owner should instead plan for death and incapacity through estate planning, such as a revocable living trust.

 

Isn’t the Operating Agreement enough?

 

Most Operating Agreements restrict transfers but do not require anyone to buy a departing member’s interest or set a price. A Buy Sell Agreement fills that gap.

 

Can we add triggering events that are not on this list?

 

Yes. Our Buy Sell Agreements are customized, and members can add any other triggering events they want.

 

When should members sign a Buy Sell Agreement?

 

The best time is when the LLC is formed and everyone gets along. Negotiating an exit strategy after a dispute, death, or divorce is far harder and more expensive.

How to Get a Custom Buy Sell Agreement

We don’t charge to answer questions about LLCs or Buy Sell Agreements. Call or email Richard Keyt at 480-664-7478 or rk@keytlaw.com, or Richard C. Keyt at 480-664-7472 or rck@keytlaw.com.

 

Option 1 — Telephone (Mon–Fri, 8 am–5 pm). The quickest, easiest and most popular option. Call and give us your information.

 

Option 2 — Online 24/7. Complete and submit our Buy Sell Agreement questionnaire.

 

Arizona LLC attorneys Richard Keyt and his son, attorney and former CPA Richard C. Keyt, have formed 10,000+ Arizona LLCs. Visit our Arizona LLC Center for more articles about Arizona LLCs.

 

This article is general information, not legal advice. © 2026 KEYTLaw, LLC.