Is a Shareholder Buyout Right for Your Business?

Buyout agreements are common, especially among shareholders. But, unlike other buyout agreements, shareholder buyouts can restrict how a shareholder sells or transfers their shares when they choose to leave.

Why Would You Need a Shareholder Buyout?

Buyout agreements are contracts between shareholders. They’re designed to protect shareholders from any disputes, but also can determine specific situations, such as:

·         Who can buyout the shareholder’s stock

·         If the company is required to buy out the shareholder

·         How the value of a shareholder’s interest is measured

·         Payments and how they will be distributed

Buyout agreements are typically found in the articles of incorporation, in a separate written agreement or in the company bylaws.

Items Your Buyout Agreement Should Cover

Buyout agreements tell other shareholders how to handle events that may initiate a buyout process. If you are considering a buyout agreement, contact a shareholder dispute lawyer to help draft one. Some things to include in your buyout agreement are:

·         Bankruptcy – If a shareholder becomes personally bankruptcy, your agreement may allow the company to acquire that shareholder’s shares.

·         Death – A shareholder that passes away will still hold their shares, but the agreement can specify if those shares are sold back to the company by the decedent’s family.

·         Retirement – A shareholder may eventually need to retire, and when they are no longer taking an active role in the business, there should be an agreement as to how that retiree’s shares are purchased and/or distributed.

·         Divorce – There may be a contingency where a shareholder’s ex-spouse can sell back their portion of the shares to the company in the event of a divorce from the shareholder.

·         Termination – When an employee is terminated, a shareholder buyout can force that terminated employee to sell their interests back to the company.

What to do if a Shareholder Dispute Arises

Buyout agreements are meant to limit the number of disputes amongst shareholders, but buyouts can quickly go south. If your shareholders do not agree on the proper way to handle a buyout or the shareholder being forced to sell disagrees, it is in the best interest of your business to hire a shareholder dispute lawyer.

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Reasons to Avoid Breaching Your Company Contracts

Whether you wrote your contract years ago and do not think it’s valid or you just think there won’t be consequences, a breach of contract is a serious offense. If you need to modify a contract or think a breach is your only option, contact a contract attorney in Houston right away.

Why Should You Never Breach a Contract?

·         Your Brand’s Reputation is at Risk – Breaching a contract, while a private action between you and the other party, could still go public. This could be a detrimental hit to your brand’s reputation — and decrease the likelihood companies will enter into contracts with you in the future.

·         You Could Face a Lawsuit – Breaching a contract could mean the other party will sue you for such.

·         Business Productivity May Suffer – When you breach a contract, you may have to spend time in court or spend time with your contract attorney in Houston dealing with restitution and negotiations. This time away from your business could affect productivity.

·         Legal Fees Will Pile Up – Depending on how your contract is written, you may not only have your own legal fees to deal with, but the legal fees of the other party.

·         You May Owe Damages – Once you breach a contract, you may be required to pay the other party damages. These include punitive, consequential and compensatory damages. The amount you end up paying could also affect your business’s financial stability.

·         Contempt of Court – If the court makes a decision regarding your breach and you do not follow it, you are not only liable for that breach, but you now face a contempt of court.

Contracts are put in place for a reason — to protect both parties entering into an agreement. If for some reason you need to breach a contract, don’t. Instead, contact a contract attorney in Houston for legal advice and assistance. A breach is not your only option. Often you can renegotiate the terms of your existing contract or negotiate with the other party to end your existing agreement without breaching.



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