LLC Member Buyouts
What are this risks in LLC member buyouts? Chicago business lawyer Brian J. Thompson cautions LLC members considering a membership interest buyout to consider the risks involved when the buyout agreement provides for money to be paid in the future. Agreeing to accept payments in the future exposes the separating member of an LLC to several forms of counterparty risk. This counterparty risk has 2 components:
1) Default risk – the counterparty simply chooses not to perform as agreed in the buyout or separation agreement; and
2) Credit risk/bankruptcy risk – the counterparty is unable to perform due to insolvency or bankruptcy.
Corporate shareholders take on the same risks noted above when they agree to accept payment at a later date.
Chicago business lawyer and CPA Brian J. Thompson strongly encourages those considering an LLC member buyout to consider the default risk and credit risk. For these reasons, it is important to receive as much of the proceeds of the LLC buyout in cash at closing.