Close Corporation Buy Sell Agreement

A close corporation buy-sell agreement is a legal contract that outlines how the shares of a close corporation will be sold or transferred in the event of a specified trigger event. A close corporation, also known as a closely held corporation, is a type of corporation that has a limited number of shareholders and is not publicly traded.

The purpose of a buy-sell agreement is to provide a clear plan of action for shareholders or their heirs in the event of certain trigger events, such as death, disability, or retirement. The agreement helps ensure that shares are sold or transferred in a way that is fair to all parties involved and that the corporation’s ownership structure remains stable.

There are several key elements that should be included in a close corporation buy-sell agreement. These elements may vary depending on the specific needs and circumstances of the corporation, but generally include:

1. Trigger Events – This section outlines the specific events that will trigger the buy-sell agreement, such as the death, disability, or retirement of a shareholder.

2. Valuation – The buy-sell agreement should outline how the value of the shares will be determined in the event of a trigger event. This can be done through a pre-agreed formula, an independent appraisal, or other methods.

3. Funding – The agreement should specify how the shares will be funded. This can be done through insurance policies, personal loans, or other financing options.

4. Restrictions on Transferability – The buy-sell agreement may include restrictions on the transferability of shares, such as requiring the approval of the other shareholders before a transfer can take place.

5. Dispute Resolution – The agreement may include provisions for resolving disputes between the shareholders regarding the buy-sell agreement.

Having a close corporation buy-sell agreement in place can provide peace of mind for shareholders and their families, as well as help ensure the long-term sustainability of the corporation. It is important to consult with legal and financial professionals when preparing a buy-sell agreement to ensure that all necessary elements are included and that the agreement complies with applicable laws and regulations.

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