Forced Sale

A forced sale is the causing by one owner in a company to force the sale of the company by the other owner or owners or to the other owner or owners. A forced sale typically occurs upon the triggering of a forced sale provision within a shareholders agreement (corporation) or an operating agreement (LLC). The purpose of such a provision is to prevent deadlocks in a company, and to ensure that, in the case of an irreconcilable deadlock, the equity interest holders will be able to go their separate ways and leave one owner as the party buying out the other owner or owners on what are agreed-up terms. A classic example is the case of a two owner company where each owner owns 50% of the company, and a decision needs to be made that requires both owners to consent, but such consent cannot be obtained. In that example, if the owners have an agreement with a forced sale provision, either owner can trigger that provision and offer to buy out or sell to the other owner on certain terms and conditions, and the other owner can then choose which option to exercise, effectively causing a buy-out and continuation on of the company in the remaining owner’s sole hands.