Buyback clause

Definition (1):

The buyback clause is a clause that can be seen in the agreements of most founders which legally obligates departing founders for selling their interest in the firm to the remaining founders if they are interested. Mostly, the agreement mentions the formula to compute the $ value to be paid.

The presence of this clause is important for at least two reasons. First, when one of the founders is leaving, the other funders may require the shares for offering to a replacement individual. Second, if founders leave because they are dissatisfied, this clause provides the remaining founders a way for keeping the firm’s shares in the hands of individuals who are completely interested in a bright future for the business.

Definition (2):

The buyback clause indicates a contract clause allowing the property’s seller the opportunity or right to repurchase or rebuy the property under the mentioned conditions. It provides the actual seller with the first right to purchase before other attempts for selling are made.

The buyback clause can also be placed as a provision that allows a franchisor or manufacturer to repurchase equipment and inventory if the franchisee or distributor’s contract is prematurely terminated.