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Buy-Sell Agreements


Buy-Sell Agreements or Shareholder Agreements, Stock Transfer Restriction Agreements, and Voting Trust Agreements

What is a Buy-Sell Agreement

Generally, the stock of a corporation is freely transferable.  A buy-sell agreement is a contract among the shareholders of a corporation which addresses the shareholders’ concerns in one or more of the following areas: protection of minority shareholders; preservation of tax status and elections (for example, S-corporations); purchase of stock upon the death or disability of a shareholder; voting control; termination of a shareholder’s employment; bankruptcy of a shareholder; management deadlock solutions; and the divorce of a shareholder whose ex-spouse is or may be awarded the shareholder’s stock.

What is the Scope of Buy-sell agreements

Buy-sell agreements can be limited in scope, or they can be very complex.  The terms of the sale and the purchase of the stock and defining the events which may trigger the option or obligation to sell or purchase stock are often sources of controversy between shareholders.  It is wise to meet these challenges head-on before the entity is organized, before stock is issued, before the doors of the business are ever opened.  If the parties cannot agree on these terms at the outset, it becomes even more difficult and perhaps impossible to reach an enforceable agreement once the business becomes successful.

What is a voting trust agreement?

A voting trust agreement is a contract among the shareholders of a corporation which irrevocably transfers their stock to a trustee, normally for a specific period of time.  Therefore, the voting rights imputed to these shares of stock and any other designated attributes of stock ownership are separated from the shareholders, and the trustee holding these shares of stock will cast the votes attributed to the stock according to a pre-agreed upon manner (for example, appointing specific individuals as officers of the corporation, or electing specific individuals as directors of the corporation).

Additional requirements

Use of a voting trust agreement also requires the preparation of a trust agreement and a voting trust certificate. I assist clients in the negotiation and preparation of buy-sell agreements, shareholder agreements, stock transfer restriction agreements, and voting trust agreements.
 

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