Practice toolkit for corporate buy-sell agreements

February 3, 2015

Keyboard typingCorporate buy-sell agreements are covered in detail in §§ 365:1 et seq., a chapter that provides business counselors with an extensive set of practice tools to assist them in negotiating and drafting effective agreements.  Corporate buy-sell agreements impose restrictions on transfers of corporate shares and include “buy-sell” provisions that call for the sale of a shareholder’s ownership interest to the corporation and/or the other shareholders on the occurrence of certain events (e.g., the death or termination of employment of the shareholder) on agreed terms and conditions.  A buy-sell agreement is a specialized form of shareholders’ agreement and it is therefore necessary for the drafter to understand how such agreements are negotiated and drafted (see §§ 35:1 et seq.).  Related issues are covered in the transactions on Business Valuation (§§ 293:1 et seq.), Issuance, Transfer and Retirement of Corporate Securities (§§ 37:1 et seq.), Estate Planning (§§ 20:1 et seq.) and, if the departure of the shareholders occurs due to termination of his or her employment relationship with the corporation, Employment Law Compliance (§§ 172:1 et seq.). Other transactions cover buy-sell agreements for Partnerships (§§ 54:1 et seq.) and LLCs (§§ 65:1 et seq.), and Buying and Selling Businesses (§§ 291:1 et seq.).

The forms library for preparing an effective buy-sell agreement begins with a comprehensive model form with alternative and optional clauses that can be selected and used as dictated by the particular circumstances.  See Master Form at § 36:141.  The model form should be supplemented by agreements that can serve as a starting point for negotiations in common scenarios including the following:

  • Buy-sell agreement for professional corporation (§ 36:293)
  • Buy-sell agreement for close corporation (§ 36:294)
  • Insurance-funded cross-purchase agreement (§ 36:295)
  • Transfer restriction and buy-sell agreement (§ 36:296)
  • Redemption agreement for closely held corporation (§ 36:297)
  • Spousal buy-out letter agreement (§ 36:298)
  • Buy-sell agreement between shareholders and trustee (§ 36:304)

Business counselors should also have agreements that focus on the specifics of using insurance to fund payment obligations under buy-sell agreement:

  • Disability buy-out insurance policies (§ 36:299)
  • Disability income insurance policies (§ 36:300)
  • Life insurance policies (§ 36:301)
  • Insurance trust agreement for purchase of shares of deceased shareholder (§ 36:305)

Payment of the purchase price in installments will require specials forms including:

  • Stock pledge and escrow agreement (§ 36:302)
  • Escrow agreement of sales of shares in corporation (§ 36:303)
  • Promissory note (§ 36:306)

Finally, ancillary forms include the following:

Useful checklists for a business counselor’s tool kit for assisting clients with negotiating and drafting effective buy-sell agreements include checklists that cover matters to consider on restrictions and buy-outs upon voluntary transfers (§ 36:310); matters to consider on restrictions and buy-outs upon involuntary transfers (§ 36:311); and matters to consider relating to payments to terminated business owners (§ 36:312).  It also useful for counsel to be able to make available to clients an executive summary regarding buy-sell agreements that lays out the basic negotiating issues (§ 36:313).  Counsel should also use a drafting and review checklist for a comprehensive form of buy-sell agreement (§ 36:291 and 36:292).

Finally, new practice tools that have been added include Slide Deck presentations on Business Owner Terminations (§ 36:314) and Buy-Sell Agreements (§ 36:315).