Shareholders' Buy-sell Agreement for Professional Corporation with Option to Purchase Shares on Termination of Employment or Death of Shareholder -- Purchase by Corporation or Remaining Shareholders
Overview of this form
The Shareholders' Buy-sell Agreement for a Professional Corporation is a legal document that outlines the terms and conditions under which shareholders can sell their shares in the corporation. This agreement is designed to ensure an orderly transition of ownership upon specific triggering events, such as the termination of employment or the death of a shareholder. Unlike general partnership agreements, this document specifically caters to professional corporations and provides a clear framework for buyouts to protect remaining shareholders' interests and maintain control within the organization.
Key components of this form
- Stock coverage: Defines the shares of common stock covered by the agreement.
- Events requiring sale: Specifies conditions triggering the obligation to sell shares, such as death or incapacity.
- Purchase price determination: Outlines how the fair market value of shares will be assessed during a buyout.
- Terms of payment: Details the payment structure, including installment plans and timing after triggering events.
- Restrictions on transfers: Prohibits shareholders from transferring shares outside the terms of this agreement.
When to use this form
This Shareholders' Buy-sell Agreement should be utilized by professional corporations to safeguard the interests of the shareholders following certain events that could threaten the stability and control of the corporation. It is particularly important when anticipating changes such as the death, incapacity, or termination of employment of a shareholder, to facilitate an orderly transfer of shares either back to the corporation or among remaining shareholders.
Who should use this form
- Professional corporations with multiple shareholders seeking to protect investments and ensure continuity.
- Shareholders in a professional corporation who want to clarify the terms under which shares will be bought or sold.
- Businesses that anticipate potential shareholder transitions due to employment changes or unexpected events.
Completing this form step by step
- Identify the parties involved, including the corporation and shareholders.
- Specify the events that will trigger the buy-sell provisions, such as termination or death.
- Determine the method of valuing the shares when a buyout is necessary.
- Fill in the payment terms for any share transactions.
- Ensure all required signatures are obtained, including those of the shareholders and their spouses, if applicable.
Does this form need to be notarized?
This form does not typically require notarization unless specified by local law. However, obtaining a notarized signature may enhance its enforceability in certain situations.
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Make edits, fill in missing information, and update formatting in US Legal Forms—just like you would in MS Word.
Download a copy, print it, send it by email, or mail it via USPS—whatever works best for your next step.
Sign and collect signatures with our SignNow integration. Send to multiple recipients, set reminders, and more. Go Premium to unlock E-Sign.
If this form requires notarization, complete it online through a secure video call—no need to meet a notary in person or wait for an appointment.
We protect your documents and personal data by following strict security and privacy standards.
Avoid these common issues
- Failing to specify all triggering events that require a buyout.
- Not updating the agreement when ownership changes occur.
- Neglecting to obtain necessary signatures, especially from spouses, where required.
- Inadequately defining share valuation methods leading to disputes.
Advantages of online completion
- Convenient access: Download and complete the form from anywhere, at any time.
- Editability: Customize the template to suit your specific corporate structure and needs.
- Legally reliable: Templates drafted by licensed attorneys ensure compliance with legal standards.
Legal use & context
- The agreement legally binds shareholders to its terms, ensuring clear ownership rights.
- Helps prevent disputes by outlining how shares will be handled during transitions.
- Can be enforced in court if properly executed according to state laws.
Summary of main points
- The Shareholders' Buy-sell Agreement is crucial for professional corporations with multiple shareholders.
- Setting clear terms for share transfers ensures business continuity and stability.
- Proper completion and execution of the form can help avoid legal disputes in the future.
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FAQ
As part of the agreement, the business buys life insurance policies on the lives of each owner. The business pays the premiums and therefore exists as the owner and beneficiary of the policy.
This is called a "cross purchase" of stock. Each shareholder is thus personally liable for the payment of the stock and the disabled or deceased shareholder's estate is actually selling to as many people as there are surviving shareholders.
This agreement is most appropriate for closely held businesses that are organized as a partnership, C corporation, S corporation, limited liability company (LLC), or professional corporation and is most useful for companies with a large group of owners, as the company funds the agreement.
A buy and sell agreement (buy-sell agreement) is a legal remedy for establishing a clear plan of how to distribute the shares of a departed or deceased partner to the remaining ones. In the case of a death, life insurance policies are used to fund the buyout of shares from the deceased's estate.
It sets out rules and expectations about what will happen in the event of the death, disability, divorce, insolvency, employment termination, or retirement of any owner (a ?triggering event?).
The owners have the assurance that a deceased or disabled owner's share of the business will not transfer to an unsuitable owner. When the buy-sell agreement is funded by life insurance, cash is available to purchase an owner's interest, alleviating the strain of having to wait to get paid.
While a buy-sell agreement typically addresses the sale of shares among co-owners of a business, a shareholder agreement may address a wider range of issues, including the management and control of the business, the distribution of profits, and the appointment of directors and officers.
Here is how buy-sell agreements work: Determine which events invoke a triggered buyout. Establish who has rights and purchase obligations. Identify the names and address of the purchasers. Set a purchase price or valuation with applicable discounts. Establish payment terms as well as their intervals.
