Business Law - Buy/Sell Agreement Checklist
If
you decide to form a corporation, a buy/sell agreement can be extremely
beneficial. Such an agreement will recognize that the corporation and
each
shareholder have separate and potentially adverse interests.
In
preparing buy/sell agreements, you should consider the following areas:
- What
capital contributions will each shareholder make initially, and are
there
obligations for additional contributions?
- To
what degree is the transfer of shares limited? Do existing shareholders
have
a right of first refusal?
- What
will trigger mandatory redemption or purchase of a stockholder's stock?
The following usually are included: death, disability, and termination
of
employment.
- What
price will be established for buying out shareholders? How will such
price
be determined?
- How
will shareholders participate in the business profits or losses?
- How
will business net income be distributed?
- Will
all shareholders be members of the board of directors?
- Which
shareholders will be officers or employees, and should their salaries
and
dividends be fixed or determined by the board?
- How
will decision-making be controlled? Some decisions may require
unanimous,
two-thirds, or a percentage greater than majority approval.
- What
restrictions will be applied to the following:
-
Amendments of articles or bylaws;
-
Issuance of securities;
-
Sale of assets;
-
Merger or dissolution of the corporation;
-
Incurring debt by the corporation
- How will any buy/sell
agreement be funded?