Buy-Sell Agreements: Protecting Your Business When a Partner Wants Out
A Louisiana-specific guide for LLC members and closely-held corporation shareholders
Without a buy-sell agreement in place before a partner dies, divorces, or walks away, the surviving owners can end up sharing the economics of a business with an ex-spouse, an estranged heir, or a succession representative — none of whom asked to be there, and none of whom will run it the way you built it.
Louisiana law makes this worse than most owners assume, and in ways that are counterintuitive. The statutory defaults do not preserve the status quo. They let a member walk out on thirty days’ notice with a check, they let an interest fracture between a usufructuary and naked owners, and they give a shareholder who feels squeezed out a statutory right to force the company to buy their shares. A buy-sell agreement is how you replace those defaults with terms you actually chose.
1. What a Buy-Sell Agreement Actually Does
A buy-sell agreement is a contract among owners — or between owners and the entity itself — that controls what happens to an ownership stake when a triggering event occurs. It answers three questions before any of them become emergencies:
- Who can buy the departing owner’s interest, and who’s required to?
- What is that interest worth, and how is that number calculated?
- How and when does the buyer actually pay for it?
Structural Note: Louisiana law doesn’t require a buy-sell agreement for either LLCs or corporations. Without one, default statutory rules fill the gap — and those defaults rarely produce an outcome any of the owners actually wanted.
2. The Louisiana Defaults You’re Living Under Right Now
Before getting to what a buy-sell agreement should say, it’s worth being precise about what happens if you don’t have one. Most owners are surprised by at least one of these.
An LLC member can generally quit and demand cash. For a limited liability company not entered into for a term, if a written operating agreement doesn’t specify when and how a member may withdraw, La. R.S. 12:1325(B) lets a member resign on not less than thirty days’ prior written notice to the company and to each member and manager. Under subsection (C), a withdrawing member is then entitled — absent contrary provisions in a written operating agreement — to the fair market value of the interest as of the withdrawal date, payable within a reasonable time. That is a default unilateral exit funded by the company, on a timeline the remaining owners don’t control. Few of the small businesses operating without an operating agreement in Louisiana realize this is the rule they’ve adopted by silence.
A membership interest is freely assignable — but the assignee doesn’t get to run anything. Under La. R.S. 12:1330(A), unless the articles of organization or an operating agreement provide otherwise, a membership interest is assignable in whole or in part, and an assignment entitles the assignee only to receive the distributions, profits, losses, and allocations the assignor was entitled to, to the extent assigned. The assignee does not become a member. La. R.S. 12:1332(A)(1) is the companion rule: absent contrary provisions in the articles or a written operating agreement, an assignee does not become a member or participate in management unless the other members unanimously consent in writing. Federal courts applying Louisiana law have read that literally, applying the unanimous-consent requirement even where the assignee was already a member of the same LLC.
The practical result is a category of person Louisiana owners rarely plan for: a bare assignee who has no vote, no management rights, and no ability to be forced out — but who is entitled to a share of every distribution the company makes, indefinitely. You don’t end up in business with your partner’s ex-spouse. You end up paying them.
On death, membership ceases and the estate becomes an assignee. Under La. R.S. 12:1333(A), unless the articles of organization or a written operating agreement provide otherwise, when an individual member dies or is judicially declared incompetent, that person’s membership ceases and the executor, administrator, or other legal representative is treated as an assignee of the interest. The heirs inherit the economics, not the seat at the table — and nothing in the LLC law obligates the company or the remaining members to buy them out.
Single-member LLCs are handled separately. La. R.S. 12:1333.1, enacted in 2022, provides that the death of the sole member of a single-member LLC does not terminate the member’s interest or the company, and that the interest is fully heritable; the succession representative may exercise the deceased member’s rights, including financial and management rights, for purposes of settling the estate. This fixed a genuine gap in prior law, but it is not a substitute for planning who ultimately ends up owning the company.
Corporate shareholders have a statutory oppression exit. Louisiana is unusual here. Under La. R.S. 12:1-1435(A), a shareholder in a non-public corporation who is subjected to oppression may withdraw and require the corporation to buy all of that shareholder’s shares at fair value. Subsection (B) defines oppression as distribution, compensation, governance, and other practices that, considered as a whole over an appropriate period, are plainly incompatible with a genuine effort to deal fairly and in good faith with the shareholder.
Why this matters for drafting: the same subsection provides that conduct consistent with the good faith performance of an agreement among all shareholders is presumed not to be oppressive. A properly executed shareholder agreement is not just an exit mechanism — it is defensive armor against an oppression claim. Shareholders may also waive the withdrawal right by unanimous written consent under R.S. 12:1-1435(J), for up to fifteen years, with the waiver noted on each share certificate.
3. Triggering Events: What Should Force a Buyout
A buy-sell agreement is only as good as the list of events it covers. The ones owners forget most often:
- Death — the most commonly drafted trigger, and often the only one.
- Disability — long-term incapacity that keeps an owner from working but doesn’t end their ownership. Define this by reference to the definition in the disability policy that funds it, including the elimination period, or the trigger and the money won’t arrive at the same time.
- Divorce — in a community property state, this is the trigger most likely to be underestimated. See Section 4.
- Bankruptcy or creditor seizure — a personal bankruptcy can put an ownership interest in the hands of a trustee. Note that under La. R.S. 12:1331, a judgment creditor who charges a member’s interest holds only the rights of an assignee.
- Voluntary withdrawal or retirement — and for LLCs, this needs to be drafted precisely because R.S. 12:1325 already supplies an answer you probably don’t want.
- Loss of a professional license — critical for medical, legal, engineering, architecture, and accounting practices, where an unlicensed owner may be legally disqualified from holding an interest.
- Deadlock or expulsion — for cause, or by supermajority vote, on terms the agreement itself defines.
- Termination of employment — for owner-operators, separating the employment relationship from the equity relationship prevents a fired employee from remaining an owner.
Drafting Note: Every one of these needs its own valuation and payment terms. A single “in the event of death or disability” clause that ignores divorce, withdrawal, or bankruptcy leaves exactly the gap most owners assume is already closed. It’s also normal for the price to differ by trigger — many agreements pay full value on death and a discounted or extended-installment price on a for-cause expulsion.
4. The Community Property Problem
This is the single most Louisiana-specific issue in buy-sell planning, and the one most often missing from form agreements drafted for other states.
Louisiana is a community property state. Absent a matrimonial agreement, an ownership interest acquired during marriage is presumptively community property, and the non-owner spouse holds an undivided one-half interest in it — regardless of whose name is on the membership certificate or stock ledger, and regardless of whether that spouse has ever set foot in the business.
That creates two distinct problems a buy-sell agreement has to solve:
During the marriage. If the non-owner spouse holds a community interest, questions about their consent to the operating agreement, their rights on partition, and their exposure to the owner-spouse’s creditors are live. A spousal consent and acknowledgment — signed by every owner’s spouse, acknowledging the agreement, agreeing to be bound by its transfer restrictions and valuation terms, and confirming the management authority of the owner-spouse — is standard practice in Louisiana and conspicuously absent from most out-of-state templates.
On divorce. Partition of the community may put a one-half interest in the business on the table. Because an LLC interest can’t be physically divided, partition frequently ends in a licitation sale or a negotiated valuation fight. A buy-sell agreement that gives the owner-spouse (or the entity, or the other owners) a right or obligation to purchase the non-owner spouse’s community interest at a pre-agreed price, on pre-agreed terms, is what keeps that fight out of the business.
Drafting Note: La. R.S. 12:1-627(D)(4) expressly permits a corporate transfer restriction that prohibits transfers to designated persons or classes of persons, provided the prohibition is not manifestly unreasonable. That is the statutory hook for a restriction aimed at former spouses. For an LLC, the same result comes from drafting the restriction into the operating agreement.
5. Succession, Usufruct, and Forced Heirship
Louisiana’s civil law inheritance rules can fracture a single ownership interest into pieces held by different people with conflicting incentives.
Usufruct. When a married owner dies intestate leaving children of the marriage, the surviving spouse takes a legal usufruct over the decedent’s half of the community property under La. C.C. art. 890, with the children holding naked ownership. Applied to a business interest, that means the surviving spouse is entitled to the fruits — distributions — while the children own the interest itself but can’t use or transfer it until the usufruct ends. If your buy-sell agreement says the company will buy the interest from “the deceased owner’s heirs,” it hasn’t answered who signs, who gets paid, or whether the usufructuary can be compelled to consent.
Forced heirship. Louisiana is the only state retaining a meaningful version of it. Under La. C.C. art. 1493, children under the age of twenty-four and children of any age who are permanently incapable of caring for themselves or their property are forced heirs entitled to a protected share of the estate. An owner cannot simply will a business interest away from a forced heir, and a buy-sell agreement that assumes the owner has free testamentary disposition over the full interest may collide with that reserved share.
Coordination Point: The buy-sell agreement, each owner’s will, and any trust need to say the same thing about the business interest. Where they conflict, the outcome is a succession proceeding — which is exactly the outcome the agreement was drafted to avoid. Any owner with a minor child, a child under twenty-four, or a permanently incapacitated child should have the buy-sell reviewed alongside the estate plan, not after it.
6. The Legal Mechanics Differ by Entity Type
For LLCs. As covered above, La. R.S. 12:1330 makes a membership interest freely assignable unless the articles of organization or the operating agreement say otherwise, while R.S. 12:1332 withholds membership and management rights from the assignee absent unanimous written consent. That default cuts the other way from what most owners expect: silence favors transferability of the economics, while simultaneously creating a class of permanent economic stakeholder nobody can remove. If you want a right of first refusal, a mandatory buyout, or an outright transfer restriction, it has to be written into the operating agreement. Nothing in the statute imposes one automatically.
For corporations. La. R.S. 12:1-627(A) authorizes restrictions on the transfer or registration of transfer of shares through the articles of incorporation, bylaws, an agreement among shareholders, or an agreement between shareholders and the corporation. Three details in the statute do most of the work:
Authorized purposes (subsection C): maintaining the corporation’s status when it depends on the number or identity of its shareholders — an S-corp election being the classic example — preserving exemptions under federal or state securities law, or any other reasonable purpose.
Permitted mechanisms (subsection D): a restriction may obligate the shareholder to first offer the shares to the corporation or other persons; obligate the corporation or other persons to acquire the shares; require approval of a transfer, if the requirement is not manifestly unreasonable; or prohibit transfer to designated persons or classes of persons, if the prohibition is not manifestly unreasonable.
Enforceability (subsections A and B): this is where restrictions fail in practice. Under subsection (B), a restriction is valid and enforceable against a holder or transferee only if it is authorized by the section and its existence is noted conspicuously on the front or back of the certificate, or is contained in the information statement required by R.S. 12:1-626(B). Unless so noted or contained, it is not enforceable against a person without knowledge of it. And under the second sentence of subsection (A), a restriction does not affect shares issued before the restriction was adopted unless the holders of those shares are parties to the restriction agreement or voted in favor of it.
The bylaws trap: because of that second sentence, a board or majority that amends the bylaws to add a transfer restriction has not bound the existing shares of any shareholder who didn’t vote for it. For a restriction intended to bind everyone, a signed shareholder agreement is the safer instrument — and the certificates need to be legended either way.
For closely-held corporations. Owners who want to go further — restructuring how the board operates, resolving deadlock, or locking in governance terms — can use a unanimous governance agreement under La. R.S. 12:1-732. Under subsection (A), it must be a written agreement other than the articles or bylaws, approved in one or more writings signed by all persons who are shareholders at the time, governing the exercise of corporate powers or the management of the business or the relationships among shareholders, directors, and the corporation — and it must state that it is a unanimous governance agreement or that it is governed by that Section. That last requirement is easy to miss and purely mechanical.
Subsection (B) is the payoff: such an agreement is enforceable even where inconsistent with other provisions of the corporation law, including by eliminating or restricting the board’s discretion, transferring management authority to shareholders, resolving director or shareholder deadlock, or requiring dissolution on request or on a specified contingency.
Three operational details: the agreement’s existence must be noted conspicuously on each outstanding share certificate under subsection (C), and a purchaser without knowledge of it is entitled to rescission — an action that must be brought within the earlier of ninety days after discovery or two years after purchase. Unless the agreement provides otherwise, subsection (I) gives it an initial term of twenty years, renewable for further terms of up to twenty years by unanimous written consent. And under subsection (D), the provisions cease to be effective when the corporation becomes a public corporation.
7. Valuation: Where Most Buy-Sell Agreements Actually Fail
An agreement that names a buyer and a trigger but leaves the price to be “agreed upon later” isn’t a buy-sell agreement — it’s a dispute waiting for a trigger event to happen. The three approaches that hold up:
| Method | How It Works | Best Fit |
|---|---|---|
| Fixed price, updated annually | Owners agree on a number each year at a documented board or member meeting | Simple structures with active owner involvement |
| Formula-based | A set multiple of revenue, EBITDA, or book value, with the inputs and the accounting method defined | Businesses with stable, predictable financials |
| Independent appraisal | A named appraiser, or a defined process for selecting one, values the interest at the time of the trigger | Businesses with fluctuating value or multiple asset classes |
Operational Guardrail: The fixed-price method only works if owners actually update the number every year. In practice, it’s often set once at formation and never touched again — so a company worth ten times its original value gets bought out at a decade-old number. If a fixed price is used, tie a fallback appraisal to any year the annual update doesn’t happen.
Whichever method you choose, the agreement should also specify: the valuation date relative to the triggering event; whether minority and marketability discounts apply (and to which triggers); how company-owned life insurance proceeds are treated in the calculation; and who pays for the appraisal.
Whether the IRS respects your number is a separate question. Under IRC § 2703, a price set by a buy-sell agreement is disregarded for estate and gift tax valuation purposes unless the arrangement is a bona fide business arrangement, is not a device to transfer the interest to family members for less than full and adequate consideration, and has terms comparable to those of similar arrangements entered into at arm’s length. Agreements among family members face the most scrutiny. A formula that produces a defensible price for the buyer will not necessarily produce a price the estate can rely on.
8. Funding: The Agreement Is Only as Good as the Cash Behind It
A well-drafted trigger and a fair valuation method still fail if the buyer doesn’t have the money on the day it’s needed. The three common structures:
- Cross-purchase — the surviving owners buy the departing owner’s interest directly, typically funded by life insurance policies each owner holds on the others.
- Entity purchase (redemption) — the company itself buys back the interest, funded by a policy the company owns on each owner.
- Hybrid / wait-and-see — the agreement gives the entity the first option to buy, with surviving owners obligated to buy whatever the entity doesn’t.
Cross-purchase math. With n owners, a fully cross-insured arrangement requires n × (n − 1) policies: three owners need six, four owners need twelve, five owners need twenty. Administration and premium equalization get difficult quickly, and cross-purchase policies raise transfer-for-value exposure under IRC § 101(a)(2) when policies change hands among owners — an existing policy transferred to a co-owner can convert otherwise tax-free death proceeds into taxable income unless an exception applies. Some groups use an insurance LLC or trust arrangement to reduce policy count; each has its own tax profile.
Entity purchase after Connelly. This is the most significant recent change to buy-sell planning, and it cuts directly against the redemption structure. In Connelly v. United States, 144 S. Ct. 1406 (2024), decided June 6, 2024, the Supreme Court held unanimously that life insurance proceeds payable to a corporation to fund the redemption of a deceased shareholder’s stock are a corporate asset that increases the corporation’s fair market value, and that the corporation’s contractual obligation to redeem the shares does not offset that increase for federal estate tax purposes. The pre-Connellyassumption — that the obligation and the proceeds cancel out — is no longer available.
The practical consequence: in a redemption structure, corporate-owned life insurance can inflate the value of the deceased owner’s own interest for estate tax purposes, potentially producing an estate tax bill on value that will be paid straight back out as the redemption price. Commentators generally read the reasoning as extending to LLCs and other closely-held entities, not just corporations.
Two things temper the urgency. Under the One Big Beautiful Bill Act, signed July 4, 2025, the federal estate and gift tax exemption is $15 million per individual — $30 million for a married couple with portability — effective January 1, 2026, made permanent with no scheduled sunset and indexed for inflation beginning in 2027. Louisiana imposes no state estate or inheritance tax. Most closely-held Louisiana businesses will therefore fall below the threshold. But businesses at or approaching that value, and owners whose exemption is already partly consumed by lifetime gifting, should have any existing redemption arrangement reviewed.
Key Risk: the funding structure carries basis and tax consequences that differ substantially between cross-purchase and redemption — including whether the surviving owners get a basis step-up in the acquired interest, and how an S corporation’s single-class-of-stock requirement interacts with the arrangement. Choose the funding structure alongside the company’s accountant and insurance professional, not after the agreement is signed.
What insurance doesn’t fund. Life insurance answers the death trigger and, with a separate disability buyout policy, the disability trigger. It does nothing for divorce, voluntary withdrawal, expulsion, or loss of license. Those triggers need a funding answer of their own: a defined installment note with a stated interest rate, term, security, and acceleration provisions; a sinking fund; or a pre-negotiated lending arrangement. An agreement that promises a lump sum the company cannot produce is an agreement that ends in litigation.
9. Review Triggers
A buy-sell agreement is not a set-and-forget document. Revisit it when:
- The annual valuation update is due — or was missed.
- Any owner marries, divorces, or has a child.
- Ownership percentages change, or an owner is added or removed.
- The company’s value changes materially, in either direction.
- The entity type or tax election changes.
- The funding structure hasn’t been reviewed since June 2024 — see Connelly, above.
- Certificates have been issued without the required transfer-restriction legend.
Frequently Asked Questions
Does an operating agreement automatically restrict who I can sell my LLC interest to? No. Under La. R.S. 12:1330(A), the statutory default allows free assignment of a membership interest unless the operating agreement or articles of organization say otherwise. If restricting transfers matters to you, it has to be drafted in — it isn’t assumed.
If my partner assigns their LLC interest to someone, does that person become my new partner? Not automatically. Under La. R.S. 12:1332(A)(1), absent contrary provisions in the articles or a written operating agreement, an assignee doesn’t become a member or participate in management unless the other members unanimously consent in writing. The assignee is entitled to the assigned economic rights — distributions and allocations — but has no vote and no management role. That can be worse than it sounds: you may be unable to remove someone who is permanently entitled to a share of every distribution.
Can a member of a Louisiana LLC just quit? Often, yes. For an LLC not entered into for a term, if a written operating agreement doesn’t say when and how a member may withdraw, La. R.S. 12:1325(B) permits resignation on not less than thirty days’ prior written notice, and subsection (C) entitles the resigning member to the fair market value of the interest within a reasonable time. This is one of the strongest reasons to have a written operating agreement with buy-sell provisions.
Can a buy-sell agreement force a shareholder to sell shares back to the company? Yes, if the restriction is properly authorized under La. R.S. 12:1-627 — subsection (D)(2) expressly permits obligating the corporation or other persons to acquire the restricted shares — and its existence is noted conspicuously on the certificate or contained in the corporation’s information statement under R.S. 12:1-626(B). A restriction that isn’t disclosed that way generally isn’t enforceable against someone without knowledge of it.
What happens if our LLC has no buy-sell agreement and an owner dies? Under La. R.S. 12:1333(A), unless the articles or a written operating agreement provide otherwise, the deceased member’s membership ceases and the legal representative is treated as an assignee — entitled to the economics, with no vote and no management rights, and with no statutory right to be bought out. If the interest was community property, the surviving spouse’s usufruct under La. C.C. art. 890 may further split the interest between the spouse and the children as naked owners.
Is a buy-sell agreement something we can add after the business is already running? Yes, and it’s common. But for a corporation, the second sentence of La. R.S. 12:1-627(A) is decisive: a restriction does not affect shares issued before it was adopted unless the holders are parties to the restriction agreement or voted in favor of it. In practice that means every current owner needs to sign on, since the restriction limits rights they already hold. The earlier it’s in place, the less leverage any one owner has to hold out.
Does my spouse need to sign? In Louisiana, generally yes. If the interest is community property, the non-owner spouse holds an undivided one-half interest in it. A spousal consent and acknowledgment, signed by each owner’s spouse, is standard Louisiana practice and is one of the most common omissions in agreements adapted from out-of-state forms.
Does having a shareholder agreement protect us from an oppression claim? It helps materially. La. R.S. 12:1-1435(B) provides that conduct consistent with the good faith performance of an agreement among all shareholders is presumed not to be oppressive. The withdrawal right can also be waived by unanimous written consent under subsection (J), for up to fifteen years, with the waiver noted on the share certificates.
A Note From Bloom Legal : This article is for general informational purposes and does not constitute legal advice. Buy-sell agreement terms — valuation methods, funding structures, and transfer restrictions in particular — should be tailored to your specific ownership structure and reviewed by counsel before adoption. Statutory provisions are summarized, not quoted in full, and are current as of the date below. Contact Bloom Legal to discuss your business’s ownership agreement.
Citation Reference Table
| Citation | Subject |
|---|---|
| La. R.S. 12:1325 | LLC withdrawal and resignation; thirty-day notice default and fair market value distribution |
| La. R.S. 12:1330 | LLC membership interest assignment; default transferability of economic rights |
| La. R.S. 12:1331 | Charging order; judgment creditor holds only assignee rights |
| La. R.S. 12:1332 | Right of assignee to become a member; unanimous written consent default |
| La. R.S. 12:1333 | Powers of estate of a deceased or incompetent member; representative treated as assignee |
| La. R.S. 12:1333.1 | Single-member LLC; heritability of interest and powers of succession representative |
| La. R.S. 12:1-626(B) | Information statement for uncertificated shares |
| La. R.S. 12:1-627 | Corporate share transfer restrictions; authorized purposes, permitted mechanisms, notice and enforceability |
| La. R.S. 12:1-732 | Unanimous governance agreements for closely-held corporations |
| La. R.S. 12:1-1435 | Oppressed shareholder’s right to withdraw at fair value; good-faith-agreement presumption; waiver |
| La. C.C. art. 890 | Surviving spouse’s legal usufruct over the decedent’s share of community property |
| La. C.C. art. 1493 | Forced heirs |
| IRC § 101(a)(2) | Transfer-for-value rule |
| IRC § 2703 | Disregard of buy-sell price for transfer tax valuation absent three-part test |
| IRC § 2010(c) | Basic exclusion amount, as amended by P.L. 119-21 (2025) |
| Connelly v. United States, 144 S. Ct. 1406 (2024) | Corporate-owned life insurance proceeds increase entity value; redemption obligation is not an offset |
Last reviewed: 08-5 | Reviewed by: Seth Bloom, Bloom Legal
