Operating Agreement Triggering Event

Purchase price. Another advantage of an enterprise agreement is its ability to define an LLC valuation mechanism and set a feed-in price in the event of performance events. Often, an LLC and its members decide to set the value of the LLC annually. Another option is to put in place a pre-defined mechanism for the evaluation of the LLC. This value may be based on the book value established by the LLC accountant or on a fair market valuation by a familiar expert in the transaction. Regardless of the valuation method chosen, preventing further litigation over how the LLC is assessed and determining the repurchase price is another advantage of the enterprise agreement. Triggering events. Many entrepreneurs neglect to think about what would happen if one of the members of the LLC died, was disabled, bankrupted, retired or voluntarily retired from the LLC. All of these triggering events can be detailed in the enterprise agreement so that their members understand what will happen if one of these unforeseen events occurs.

In the event of death or disability, the LLC or its members may either have the opportunity to acquire the units of the deceased or disabled member or be required to do so. If the members of the LLC are also staff members, it is possible to include detailed provisions on what happens when a member is voluntarily dismissed, leaves for reasons or retires. Finally, the operating contract may grant LLC the right to purchase the member`s shares if it goes bankrupt or voluntarily withdraws from LLC, sometimes at a reduced purchase price. A duly developed enterprise agreement should allow members to oust another member at a specified purchase price in the event of a member failure. This can help avoid lengthy and costly litigation in which a judge or jury decides whether or not a member`s behaviour constitutes a “triggering event” and, in the absence of such language in an enterprise agreement, the value of that membership interest below a “triggering event.” MCL 450.4515 also allows a member of an LLC to sue other members for “deliberate, unfair and repressive conduct” against the member. Whenever a member feels unjustly treated, a member, if he has not agreed to manage the situation in the enterprise agreement, can compel other members to face justice to force a buyout to claim damages and possibly the dissolution of the LLC. This type of headache is expensive and distracting. Before accession problems become a problem, steps must therefore be taken to address how these problems can be addressed by the procedures set out in the enterprise agreement.