Force-Out Provision

Force-Out Provision

A Force-Out Provision is a contractual clause typically found in partnership agreements, shareholder agreements, or operating agreements of limited liability companies (LLCs). This provision grants certain parties the right to compel other parties to sell or transfer their ownership interests under specific conditions.

The Force-Out Provision is commonly utilized to facilitate the smooth transition of ownership in a business when certain triggering events occur, such as the death, disability, or misconduct of a partner, or when a partner wishes to exit the business. This provision aims to protect the interests of remaining owners and ensure that the ownership structure remains stable and manageable.

For example, in a partnership agreement, a Force-Out Provision might state that if a partner is found to be in breach of the agreement, the remaining partners can choose to buy out the breaching partner’s shares at a predetermined price or based on a fair market valuation. This helps to prevent disputes and maintains the integrity of the partnership by allowing for an orderly exit of a problematic partner.

In summary, a Force-Out Provision serves as a crucial tool in business arrangements, allowing for the controlled buyout of a partner or shareholder while minimizing disruptions to the business’s operations.