Right to resell after withdrawal: Overview, definition, and example
What is the right to resell after withdrawal?
The right to resell after withdrawal refers to the ability of a party (often a shareholder or investor) to resell their interest, shares, or investment in a business after they have withdrawn from the company. This right is typically outlined in a partnership or shareholder agreement and allows a withdrawing party to sell their ownership stake back to the company, to the remaining partners or shareholders, or to a third party. The right to resell may be subject to certain conditions, such as approval by the other partners or shareholders, or a specified timeframe within which the resell must occur.
In simpler terms, the right to resell after withdrawal means that when you leave the business or investment, you have the option to sell your share or interest.
Why is the right to resell after withdrawal important?
The right to resell after withdrawal is important because it provides flexibility and protection for parties who wish to exit a business or partnership. It ensures that the withdrawing party has an option for liquidating their ownership stake rather than being stuck with an interest in a business they no longer want to be involved with. For businesses, it can help prevent situations where a partner or shareholder leaves but cannot easily find a buyer for their share, which might disrupt the business’s operations.
For SMB owners, understanding this right is essential when setting up agreements with partners or investors, as it helps define exit strategies and manage ownership changes smoothly.
Understanding the right to resell after withdrawal through an example
Let’s say your business has multiple partners, and one partner decides to withdraw from the business. As part of the partnership agreement, the withdrawing partner has the right to resell their share to the remaining partners or to a third party. The agreement might specify that the business has first rights to buy the share at a fair market value, or that the partner can sell to anyone they choose after a certain period.
In this example, the right to resell after withdrawal ensures that the withdrawing partner is not left without options and that the remaining partners have a clear process for handling the ownership transition.
Example of a right to resell after withdrawal clause
Here’s an example of what a right to resell after withdrawal clause might look like in a partnership or shareholder agreement:
“In the event that a Partner withdraws from the Partnership, the withdrawing Partner shall have the right to resell their interest in the Partnership to the remaining Partners, at a price determined by mutual agreement or as per the valuation procedures outlined herein. If the remaining Partners do not exercise this right within [X] days, the withdrawing Partner may sell their interest to a third party, subject to the approval of the remaining Partners.”
Conclusion
The right to resell after withdrawal is an important provision that provides flexibility for both the withdrawing party and the remaining partners or shareholders in a business. For SMB owners, including this right in partnership or shareholder agreements ensures that the business can handle ownership changes smoothly and fairly. It also protects the interests of partners or investors who may wish to exit the business, offering them a clear path to resell their stake without disruption to the company’s operations.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.