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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