Mandatory Triggering Event

This is an event, the occurrence of which, gives a company or an equity holder in that company, the obligation to buy stock or other equity interest at a specified price within a specific time period after the event occurs, such as the death of a co-owner in the company. A mandatory triggering event can occur in either an LLC or a corporation. In an LLC, such events are agreed upon by the owners in their operating agreement. In a corporation, such events are agreed upon by the owners in their shareholders agreement. The word mandatory is used because, upon the occurrence of the event, an obligation automatically occurs. That is, the event does not give anyone an option to do or not do something. The word trigger is used to signify the automatic sequence of steps that occur upon the occurrence of the event. Companies may have certain events be considered to be as mandatory, and other events to be considered as optional; those optional events would fall under the category of call option triggering events. Whether mandatory or optional, a good example is the death of an owner of a company. In order to avoid having the remaining owners of the company be in business with that deceased person’s relatives, if the death of an owner is agreed to be a mandatory triggering event, then the company must buy back that deceased owner’s ownership interest. Thus, exclusive ownership amongst the remaining owners is preserved.