Having a Shareholder Buyout Agreement for your business in Florida can allow you to weather the changes life and the corporate world brings. From resignations and terminations to debts and divorces, having a Buyout Agreement in place is an essential step for every business owner to take.
In this guide, we’ll explain why you need a Shareholder Buyout Agreement in Florida:
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What are Shareholder Buyout Agreements?
Shareholder Buyout Agreements are contracts businesses use to control how shares can be bought or sold. Shareholder Buyout Agreements are also often called ‘Buy-Sell Agreements’ or ‘Stock Agreements’.
Many people consider them the ‘prenup agreement of business owners; it lays out rules for what should happen if they decide to part.
Using a buyout agreement can allow a privately held company to limit or restrict a shareholder’s ability to sell their shares when leaving a company.
Primary Uses of a Shareholder Buyout Agreement
- If a shareholder must be bought out when leaving the company
- Who can buy the shareholder’s stock (such as outsiders, or only current shareholders)
- What price must be paid for the shareholder’s stock
- What events may trigger a buyout
- How to measure the value of a shareholder’s interest in the business
- Payment terms for a buyout
When is a Shareholder Buyout Agreement Needed?
Many business owners make the mistake of thinking they don’t need a Shareholder Buyout Agreement until it’s too late.
Sadly, a co-owner will likely leave someday, even on a business formed from the best of friendships or partnerships. Whether they have a change of passion in life, or there’s a falling out, you have to ask yourself the question “What will happen if one of us decides to leave?”
If there’s no agreement on what happens next, your business could be at risk. The shares could be sold to someone you wouldn’t want, leading to disaster for your passion and finances.
Read Related: Do Family Businesses Still Need Partnership Agreements?
Here are some examples of events that call for the need of a Shareholder Buyout Agreement:
Events That Need Shareholder Buyout Agreements
If a shareholder files for personal bankruptcy, creditors may have the legal right to seize their shares to cover outstanding debts. To protect against this, the company may be able to buy out the owner’s interest in the business.
A Shareholder Buyout Agreement can plan for what happens if a shareholder passes away. For example, the decedent’s family may need to sell the inherited share back to the company; or alternatively, they may be able to sell it as they wish.
Retirement or Resignation
If a shareholder resigns or retires, then a Shareholder Buyout Agreement may allow the business to acquire their interest. This can be planned so it happens when they reach a predetermined age.
Under normal circumstances, when a shareholder gets divorced, their ex-spouse could potentially acquire an ownership interest in the company. With a Shareholder Buyout Agreement, you can set rules so that the ex-spouse has to sell the acquired interest back to the company.
A Shareholder Buyout Agreement can allow for the triggering of a sale of the shareholder’s interest in the company if they suffer an accident or illness that leads to serious disability or incapacitation.
Termination of Employment
If an employee is fired, then the use of a Buyout Agreement can ensure the employee is forced to sell their interest back to the company. This can be critical in protecting the company’s private information.
In the case of an attractive offer, a shareholder may be able to sell their interest in the company if it meets the agreement’s terms.
Who Drafts a Shareholder Buyout Agreement?
It’s highly recommended that you work with a Florida business contract lawyer when drafting a Shareholder Buyout Agreement. Contracts are prone to misunderstandings in phrasing and terminology, leaving the door open to disputes and litigation.
With the help of our experienced Florida Business Lawyers, we can draft, negotiate and execute the terms of the agreement for both sides, in the best interests of the businesses.
How to Fund a Shareholder Buyout
To buy out a shareholder, the company will need to have the funds to pay for the value of the shareholder’s interest.
This can be done via:
- Business Assets: The business may agree to pay the shareholder for their interest over time, via the income from the business.
- Insurance Policy Proceeds: Some companies use life insurance policies and disability insurance policies to cover the costs needed if the shareholder becomes disabled or passes away.
Hire a Business Formation Attorney in Riverview and St. Petersburg, FL
If you’re starting a business in Florida, or want to add a Shareholder Buyout Agreement to your existing partnership or company, then our Florida business lawyers can help.
We regularly help business owners ensure stability, while also meeting state and Federal regulations. From drafting the agreement to negotiating, we’ll provide an expert helping hand every step of the way.
Battaglia, Ross, Dicus & McQuaid, P.A. is U.S. News and World Reports Tier 1 law firm in Florida, specializing in shareholder agreements and business advice since 1958. With award-winning experienced business attorneys, they can help you reach your goals.