Not having a corporate shareholder agreement can be very expensive. Without this agreement in place, there will not be a contract that determines whether the other shareholders will need to buy the shareholder out and for how much. However, with a shareholder buyout agreement, you'll have a plan in place for if you'd like to exit your company or if you have passed away or file for bankruptcy.
Understanding the Buyout Agreement
The buyout agreement determines whether the company buys out the exiting shareholder, who can buy the shareholder's stock, how the shareholder's interest can be measured, the payment terms for the buyout, and what happens when the shareholder passes away. You will also be able to establish other events that could trigger a buyout. For example, you might want a shareholder buyout to be part of a prenuptial agreement.
One of the challenges a company might face is that an unwanted shareholder might attempt to purchase the shares. The best way to avoid this is to prohibit who is able to purchase shares. If you are drafting a shareholder buyout agreement, it's essential that you ask for help from a business transaction law service.
When creating your corporation, you are able to include the buyout agreement in your articles of incorporation. You are also able to include the agreement in another written agreement or in the bylaws.
A common reason for leaving a company is that you may wish to eventually retire. When you reach a certain age, you might plan to retire and have your shares automatically be sold. Also, you may be forced to retire earlier because you have become incapacitated or disabled. Under these circumstances, you'll want to have a shareholder agreement that can govern what will happen.
Negotiating the Buyout Agreement
The other shareholders may disagree with the conditions in which they can force you into a buyout. For example, they might wish to have the option of a buyout if your employment is terminated. This is done to prevent you from having access to company information when you are no longer working for the company. However, with the help of business transaction law services, you can negotiate an agreement that is in your best interest.
Funding the Buyout Agreement
Business transaction law services will allow you to decide how the buyout will be funded. Some agreements have the buyout be funded by an insurance policy, while others use assets belonging to the business. When you consider each possibility, you'll feel more confident making your decision.