Shareholder Buy-Sell Agreements

A Buy-Sell Agreement provides for the buying and selling of the stock in a corporation — usually a small closely held corporation — of a withdrawing shareholder. This agreement benefits both the corporation

and its owners. (Sometimes a Buy-Sell Agreement includes a Right of First Refusal Agreement.)

Reasons for Withdrawing

A shareholder may either want to (or need to) withdraw from the corporation for a number of reasons, including but not limited to:

• Wanting to sell due to financial troubles
• Death
• Disability, mental or physical
• Expulsion from the business
• Termination of employment
• Bankruptcy
• Retirement
• Voluntary or involuntary dissolution of the corporation

Setting the Price

Setting the price of the interest to be bought and sold is both the most important and most difficult part of the Buy-Sell Agreement. Valuing a closely held business is fraught with potential difficulties, but it is a critical part of the agreement. There are different valuation methods from which to choose, including capitalized earnings formula, book value, appraisal, agreed price, or arbitration, among others.

Key Provisions

Key provisions of the Buy-Sell Agreement include: