These contracts are between the co-owners of a business and govern what they can, can’t, and must do with their ownership rights. For a corporation, these are separate documents, also often called shareholder or stock-restriction agreements. For LLCs, the terms are included in operating agreements.
A common condition prohibits a sale or gift to someone else, even a spouse, without the co-owners’ consent. Or at least without first giving them the option to buy it at some pre-arranged price or formula.
Other issues to be considered and addressed include:
– The procedure to raise more money from the owners
– How cash flow and profits are distributed
– What happens when an owner becomes disabled or dies
– How ownership is valued and the payment terms in case of a buy-out
– The role of life insurance
– Whether additional owners maybe admitted, and if so, how
– The need for non-compete agreements.
Before you come see us about drafting a buy-sell, give these points some thought. Or just call if you have a question about them.