From Idea to Exit: Structure - For Cause Repurchase Rights

You know how hard it is to build a successful business. Our business lawyers want to make sure that entrepreneurs and small business owners have every advantage possible in making that happen.

A solid and secure legal foundation is a crucial component to doing so, and that is why your operating agreement or your bylaws are so critical to your business. In previous posts, we discussed methods of ensuring that your business can control your company’s equity in a way that allows the company to grow, develop, and reach its potential.

Considering this theme, a provision that we as business attorneys advise our clients to include in their operating agreements or bylaws is a for-cause repurchase right.

Protection from Bad Actions

For-cause repurchase rights protect the business when owners make actions that are not in the company’s company’s best interest. The for-cause repurchase rights allow the company to distance itself from that owner and purchase that owner’s equity back.

An example of an action that is not in the company’s best interest is if an owner of the business is convicted or engages in an activity that could lead to a conviction of a misdemeanor or felony-level criminal offense involving fraud, embezzlement, or dishonesty. By having this provision, the company can elect the right to repurchase that owner’s equity.

Another common trigger in a for-case repurchase clause is if there's a material breach that goes uncured of the operating or shareholder agreement or other agreement between an owner and the company. The threat of losing your equity creates an additional incentive for owners to comply with their contracts and obligations to the company.

Ability to Rebuy Equity

The idea is that if someone does something that materially hurts the company, then the company needs to be able to repurchase that bad actor’s equity. There is no room on the cap table for deadweight, and there is no reason that they should ever benefit further from you building your business.

We even regularly add a provision that allows for the company to buy the equity at a reduced rate, typically at about 50% of the fair market value of that owner’s equity. The percentage discount can change depending on how big of a disincentive they want to set for bad-actors. As a result, we regularly see the discount spanning between 20% and 80%.

As these are common aspects that go into a for-cause repurchase right, it's something that each company should carefully evaluate having in their operating agreement or bylaws.

The business attorneys at Freeman Lovell love assisting entrepreneurs and small-business owners understand, mitigate, and take the right legal risks in their operating agreements and bylaws.

Call or text us at (385) 217-5611 or send us a message through our , Contact Form .

You can also access all of our presentations on this section to learn more about how you can build your business and how we will clear the way for your success from idea to exit at this LINK .

10 Years, 10 Lessons

By Madison Francis • March 30, 2026
What We Would Tell Our Year-One Selves

WORKPLACE LAWSUITS

By Adrienne Langmo • March 20, 2026
The #1 Secret Weapon Against Workplace Lawsuits (It’s Not What You Think)

Scaling Your Startup: Is Your Next Hire a Contractor or an Employee?

By Adrienne Langmo • February 18, 2026
For small business owners in Utah, growing the team is an exciting milestone and you’ve likely faced the classic question: Should I hire an actual employee, or can I just find a "guy who knows a guy" and pay him via Venmo? While it might be tempting to treat an employee (W-2) and an independent contractor (1099) as interchangeable based on your budget, the IRS and the Utah Labor Commission see things very differently. Misclassifying a worker isn't just a clerical error; it can lead to significant back taxes and penalties. Here is a practical look at the differences to help you stay compliant while you scale. The Independent Contractor (1099) Think of a contractor as a separate business entity that you have hired to perform a specific project or attain a specific result. They are specialists who bring their own "secret sauce" to the table. Autonomy : They generally use their own equipment, set their own hours, and work from their own locations. The "What" Not the "How" : You have the right to control the result of the work, but not the specific methods used to achieve it. Financial Independence : They pay their own self-employment taxes, health insurance, overhead, and will typically invoice you for their services. They may have other clients besides your business. The Employee (W-2) An employee is someone who is fully integrated into your business operations. They are part of the daily rhythm of your company and are under your direct supervision. Direction and Control : You dictate when they work, where they work, and the specific sequence of their tasks. You provide the equipment to complete those tasks. Business Integration : Their services are usually a "key aspect" of your regular business activity. If your business is a bakery, the person baking the bread is likely an employee; the person fixing the oven is likely a contractor. Employer Obligations : You are responsible for withholding income taxes and paying a share of Social Security and Medicare. In Utah, you’ll also need to ensure you're covered for Workers' Compensation and Unemployment Insurance. The Bottom Line: Control The government looks closely at the reality of the working relationship , not just the title you put on a contract. Your degree of control , or lack thereof, is key. Ultimately, if it looks like a duck and quacks like a duck, they’re going to treat it like a duck. Taking the time to classify correctly now prevents headaches down the road. We are here to help you craft, review, and amend employment and contractor agreements and navigate any other issues that may arise as you scale your workforce.