Christian OsgoodCEO, Multifamily Strategy · CEO at Multifamily Strategy

What Happens when You Want to Buy the Person Out

9 Sept 2026 · 1 min

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In this short dialogue, Speaker A asks how a buyout of a person works in investment deals. Speaker B explains that an option contract gives the holder an exclusive, but optional, right to purchase the person’s equity at a predetermined price within a set time frame. The holder can choose to exercise the option, and the contract can include penalty clauses that force the seller to forfeit a portion (e.g., 50% or 100%) of their equity if the buyer does not exercise the option. However, the contract cannot impose a mandatory buyout without creating a security, meaning the buyout must remain optional by law. The discussion highlights the structure of buyout options, the use of conditional equity forfeiture, and the legal restriction against compulsory buyouts.

Chapters

But what happens when you want to buy the person out? Do they usually say yeah? Or how does that— how do you go about—
So optionals are optional for you. You have purchased in an option contract, you have the exclusive right to buy them out at a fixed period of time at a fixed price. You can either execute that or not, hence the option. Now, if I'm an investor, and part of my payout is you executing this option, I obviously want you to do that. You can put penalties in the contract. If I don't buy you out, then I have to sacrifice 50% of my equity to you, or in some cases, 100%. So you can put if then clauses on an option contract. But legally, you cannot have a mandatory buyout without creating a security. So it— an option, a buyout option has to be optional, but you have the exclusive right. They can't say no to you when you have an option to buy them out at a fixed price in a fixed period of time. That is built into the beginning of your deal.