When drawing up a buyout clause it is critical to specify, in no uncertain terms, the value to be applied to the partner\u2019s share. There will often be a significant disparity between book value and current market value, as many years may have transpired by the time the triggering event takes place. If book value is chosen, it can result in someone else reaping the fruits of the bought-out partner\u2019s labor. <\/p>\n
In Estate of Claudia L. Cohen v. Booth Computers and James S. Cohen, a New Jersey appellate court case, the enforceability of such a buyout was brought into question.\u00a0 Claudia and her brother James were partners of Booth Computers, a family partnership set up by their father. A buyout provision was included, stating that upon the death of one of the partners the remaining partner\/s could buy back the share at book value. Book value was $50,000. Claudia died in 2007, triggering the buyout provision. Ronald Perelman, Executor of Claudia\u2019s estate, appealed that the buyout was unconscionable, as the fair market value of Booth Computers was over 11 million dollars. The judge concluded that disparity between book and market value does not render a buy-sale agreement unconscionable.<\/p>\n