A corporation whose shares are held by a single shareholder or a closely-knit group of shareholders (such as a family) is known as a close corporation. The shares of stock are not traded publicly. Many of these types of corporations are small firms that in the past would have been operated as a sole proprietorship or partnership, but have been incorporated in order to obtain the advantages of limited liability or a tax benefit or both.
A buy-sell agreement is an agreement between the owners (shareholders) of a firm, defining their mutual obligations, privileges, protections, and rights. This form is a generic example that may be referred to when preparing such a form for your particular state. It is for illustrative purposes only. Local laws should be consulted to determine any specific requirements for such a form in a particular jurisdiction.
Shareholders' Agreement between Two Shareholders of Closely Held Corporation with Buy Sell Provisions
Category:
State:
Multi-State
Control #:
US-02569BG
Format:
Word;
Rich Text
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Description
Definition and meaning
A Shareholders' Agreement between two shareholders of a closely held corporation with buy-sell provisions is a legally binding document that outlines the terms and conditions of the ownership and transfer of shares between the shareholders. This type of agreement serves to protect each shareholder's interests by specifying how shares can be bought or sold, what happens in the event of a shareholder's death, and conditions under which shares may be transferred. By defining these parameters, the agreement helps prevent disputes and ensures stability in the ownership structure of the corporation.
Key components of the form
This agreement typically includes several critical components:
- Definitions: Key terms used within the agreement are defined to ensure clarity.
- Issuance and transfer of stock: Specifies how shares will be issued, held, and transferred.
- Buy-sell provisions: Details procedures for buying or selling shares, including notices and rights of first refusal.
- Provisions regarding death: Outlines what happens to a shareholder's shares upon their death.
- Noncompetition clauses: May restrict selling shareholders from competing against the corporation post-sale.
- Governing law: Specifies the jurisdiction under which the agreement will be construed.
Who should use this form
This agreement is suitable for individuals who are shareholders in a closely held corporation, particularly those who wish to establish rules around the management and ownership of shares. It is especially beneficial for:
- Small business owners looking to formalize their ownership arrangements.
- Partners in a business who want to protect their investments and outline exit strategies.
- Shareholders who want to ensure smooth transitions in ownership in the event of a shareholder's death or other circumstances.
How to complete a form
To properly complete a Shareholders' Agreement, follow these steps:
- Gather necessary information: Collect details like the names of the corporation, shareholders, number of shares, and par value.
- Fill in the agreement: Insert the required information into the appropriate sections, ensuring all data is accurate.
- Review key terms: Carefully consider the buy-sell provisions and any noncompete clauses to understand their implications.
- Consult a legal professional: It is advisable to have an attorney review the agreement to ensure it meets legal standards and adequately protects your interests.
- Sign and date the agreement: All parties involved should sign the document and date it to signify their consent.
Common mistakes to avoid when using this form
When creating or completing a Shareholders' Agreement, be mindful of the following common mistakes:
- Failing to define key terms clearly, which can lead to misunderstandings.
- Neglecting to include or incorrectly detailing buy-sell provisions, which are crucial for shareholder transitions.
- Not consulting a legal professional, leading to potential legal pitfalls.
- Leaving sections blank or making assumptions about understandings without documenting them, which may result in disputes.
- Using outdated templates that may not reflect current laws or business needs.
What documents you may need alongside this one
When using a Shareholders' Agreement, you may also require the following documents to support and enforce the agreement:
- Articles of Incorporation: Outlines the corporation's structure and governance.
- Bylaws: Details the procedures for the corporation's operations.
- Buy-sell agreement: If separate, it will govern specific buy-sell arrangements among shareholders.
- Valuation reports: Helpful for establishing the fair market value of shares in buy-sell transactions.
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FAQ
A buy and sell agreement is a legally binding contract that stipulates how a partner's share of a business may be reassigned if that partner dies or otherwise leaves the business.The buy and sell agreement is also known as a buy-sell agreement, a buyout agreement, a business will, or a business prenup.
Identity of the Parties/Date of Agreement. The first topic a sales contract should address is the identity of the parties. Description of Goods and/or Services. A sales contract should also address what is being bought or sold. Payment. Delivery. Miscellaneous Provisions. Samples.
A buy-sell agreement consists of three common elements: a triggering event, a valuation method and a funding strategy.
A buy and sell agreement is a legally binding contract that stipulates how a partner's share of a business may be reassigned if that partner dies or otherwise leaves the business.The buy and sell agreement is also known as a buy-sell agreement, a buyout agreement, a business will, or a business prenup.
Most Common Uses of a Buy-Sell Agreement The buyout agreement stipulates what types of events trigger the contract. Each agreement is laid out to best meet the needs of each particular company. It can include specifications about who can buy stocks and the type of life situation that would trigger a buyout.
Introduction. Step 1: Decide on the issues the agreement should cover. Step 2: Identify the interests of shareholders. Step 3: Identify shareholder value. Step 4: Identify who will make decisions - shareholders or directors. Step 5: Decide how voting power of shareholders should add up. Further information and documents.
Most Common Uses of a Buy-Sell Agreement The buyout agreement stipulates what types of events trigger the contract. Each agreement is laid out to best meet the needs of each particular company. It can include specifications about who can buy stocks and the type of life situation that would trigger a buyout.
Depending on your situation, plans and the number of partners, the cost of drafting a buy-sell agreement can vary. When you hire a lawyer in the Priori network, drafting a buy-sell agreement typically costs anywhere from $1000-$5000.
Agreed value. You can set a value in the buy-sell agreement. Book value. Multiple of book value. Appraised value.