Buy Sell Agreement between Shareholders of Closely Held Corporation Form

What is the buy sell agreement between shareholders of closely held corporation

A buy sell agreement is a legally binding contract among shareholders of a closely held corporation. It outlines the terms under which shares can be bought or sold, particularly in situations such as the death, disability, or departure of a shareholder. This agreement serves to protect the interests of all shareholders by ensuring that shares are transferred to pre-approved individuals, thereby maintaining control within the existing group of shareholders. The buy sell agreement also helps to establish a fair market value for the shares, which is crucial for determining the sale price during transactions.

Key elements of the buy sell agreement between shareholders of closely held corporation

Several key elements are essential to include in a buy sell agreement to ensure its effectiveness:

• Triggering events: Clearly define the events that will trigger the buy sell provisions, such as death, retirement, or voluntary exit of a shareholder.
• Valuation method: Specify how the shares will be valued, whether through a fixed price, appraisal, or formula.
• Buyout process: Outline the procedures for initiating a buyout, including notification requirements and timelines.
• Payment terms: Detail the payment structure, including whether it will be a lump sum or installment payments.
• Restrictions on transfer: Include any restrictions on transferring shares to outside parties without consent from other shareholders.

Steps to complete the buy sell agreement between shareholders of closely held corporation

Completing a buy sell agreement involves several important steps:

1. Identify shareholders: List all current shareholders and their respective ownership percentages.
2. Discuss terms: Hold discussions among shareholders to agree on the terms and conditions of the agreement.
3. Draft the agreement: Create a written document that includes all agreed-upon terms, ensuring clarity and completeness.
4. Review legal compliance: Consult with a legal professional to ensure the agreement complies with applicable laws and regulations.
5. Sign the agreement: Have all shareholders sign the document to make it legally binding.

Legal use of the buy sell agreement between shareholders of closely held corporation

The legal validity of a buy sell agreement hinges on several factors. It must be executed in accordance with state laws, which may vary. The agreement should be clear and unambiguous, with all parties fully understanding their rights and obligations. Additionally, the agreement should comply with relevant corporate governance rules. When properly structured, a buy sell agreement can be enforced in court, providing legal protection for shareholders and ensuring that the terms are upheld in the event of a dispute.

Examples of using the buy sell agreement between shareholders of closely held corporation

Practical examples of a buy sell agreement can illustrate its application:

• A shareholder passes away, triggering the buy sell agreement. The remaining shareholders purchase the deceased's shares at the agreed valuation, ensuring continuity of ownership.
• A shareholder wishes to retire and sell their shares. The buy sell agreement dictates the process, ensuring the remaining shareholders have the first right to buy the shares.
• In the event of a shareholder becoming disabled, the agreement provides a clear pathway for the remaining shareholders to acquire the disabled shareholder's shares, maintaining the integrity of the corporation.