KY Shareholder and Buy-sell Agreements
While businesses may share an industry or a target audience, no two businesses are exactly alike.
To maximize the chances of success, that uniqueness should be reflected in the legal agreements that form a company’s foundation. While standard forms can offer valuable starting points, they also miss the details that set businesses apart from each other. Small businesses should not use a cookie-cutter agreement. Rather, they should consult a business law attorney who will walk through relevant questions and prepare agreements that are custom tailored to the business’s individual situation.
With over 35 years of experience in our community, the Fayette County business lawyers at Bunch & Brock are committed to providing each of our clients with a high level of personal service. We are dedicated to helping those in our community who may be in the beginning stages of forming a business. We take the time to fully understand your situation and discuss your options. Let us work with you to make your business ownership dreams come true.
Even though shareholder agreements are voluntary, every company with more than one shareholder should have such a document. Intended to reduce the potential for conflict down the road, shareholder agreements are instrumental in helping a business run smoothly and profitably. Although the agreements can vary greatly between different commercial fields, a shareholders’ agreement is normally expected to provide for the regulation of ownership and voting rights of the shares, for control and management of the company, for resolution of any future disputes between shareholders, and protecting the competitive interests of the company.
Common questions to be addressed by the shareholders’ agreement include:
- How is the business going to make money for the shareholders? By giving them jobs or paying them profits annually or building a valuable business that can be sold at a later date?
- Is there a business plan? If no, why not? When will there be one?
- Has it been incorporated? When? Where? By whom?
- How many shares is each shareholder to hold? What class of shares do they hold? How much are they to be paid for their shares?
- What third-party financing is going to be used? What if more money is needed?
- What will constitute a quorum of decision-makers?
The best time to protect against future troubles is when everything is going well. A buy-sell agreement can safeguard each shareholder’s financial interest in the company in situations where changes in one shareholder’s personal circumstances can affect them all. A buyout agreement allows each shareholder to buy the others’ shares in the event of disability, bankruptcy, divorce or retirement. In the case of death, shares become an asset of the decedent’s estate, so the best provision is one where the remaining shareholders are allowed to buy most (usually 75 percent), but not all, of the decedent’s shares and converting those shares that are inherited into nonvoting shares so that the heirs don’t get the right to manage the business.
With a redemption-style agreement, the business itself makes the purchase so the shareholders don’t individually do so out of pocket. Both types are very flexible — the price might be fixed or determined by appraisal, paid in cash or installments over time. Buy-sell agreements are crucial to dealing with contingencies before the problems have a chance to manifest themselves.
The time to prevent disputes is before they occur. Having experienced business attorneys draft your shareholder agreement or your buy/sell agreement can help you avoid or minimize any potential disputes that could derail the success of your business. At Bunch & Brock, our Lexington, KY-based business attorneys understand the needs of individual business owners, and we have the necessary skills to be able to help them through potentially challenging issues. We have decades of experience successfully navigating the various stages of business development, and we can help you. To schedule an initial consultation, please call 859-254-5522 or fill out this online form.