Owners’ agreement or ownership agreement refer to the contract made between owners of a business entity that determines the rights of the owners. Ownership agreements differ based on the type of business such as partnerships or LLCs. Generally, the most important role of an ownership agreement is defining the authority of each owner and how the changes in ownership will be handled.
A business may or may not want an owner to be able to sell their part of the business. Many partnerships in the ownership agreement set out that the partnership will dissolve after the death of an owner or after an owner wishes to leave the partnership. The ownership agreement will contain the essentials of how transfers in ownership will be handled including whether ownership can be sold and details like whether the other owners must approve of the sale.
A typical ownership agreement also contains other important details. The voting or control rights of each owner will be defined whether each owner has equal or disproportionate voting power. Also, a method of resolving disputes may be noted in the ownership agreement to solve disagreements such as transfers of ownership or disagreements over management. An ownership agreement can contain many more provisions as it relates to the rights of the owners and the type of business, but they typically do not include the details of running a business on a daily basis like bylaws or operating agreements.
[Last updated in April of 2022 by the Wex Definitions Team]
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