A buy-sell agreement is an agreement between the owners (shareholders) of a firm, defining their mutual obligations, privileges, protections, and rights.
The Alabama Buy-Sell Agreement between Two Shareholders of a Closely Held Corporation is a legally binding document that outlines the terms and conditions for the purchase and sale of shares between shareholders in a closely held corporation based in Alabama. This agreement is crucial for protecting the interests and rights of shareholders, as well as ensuring a smooth transition of ownership in the event of certain triggering events. In Alabama, there are primarily two types of Buy-Sell Agreements that can be utilized between two shareholders of a closely held corporation: 1. Cross-Purchase Agreement: This type of agreement allows each shareholder to have the option to purchase the shares of the other shareholder in the event of a triggering event, such as death, disability, retirement, or voluntary departure. The agreement outlines the conditions under which the shares can be purchased, the valuation method to determine the share price, and the payment terms. This agreement ensures that the remaining shareholder(s) have the opportunity to maintain control and ownership of the corporation. 2. Redemption Agreement: This agreement allows the corporation itself to repurchase the shares from the departing shareholder. It is usually funded by the corporation's life insurance policy or through the accumulation of profits over time. The agreement outlines the circumstances triggering the redemption, the valuation of the shares, and the terms under which the redemption will take place. This type of agreement is commonly used when there are more than two shareholders involved. Key elements typically included in an Alabama Buy-Sell Agreement between Two Shareholders of a Closely Held Corporation may include: 1. Identification of Parties: Clearly state the names, addresses, and roles of the shareholders involved in the agreement. Include the corporation's name and address. 2. Purpose: Clearly state that the agreement is being established to regulate the sale and purchase of shares between the shareholders. 3. Triggering Events: Define the specific events that can trigger the buy-sell provisions, such as death, disability, retirement, bankruptcy, divorce, or voluntary resignation. 4. Share Valuation: Establish a method for valuing the shares, such as using the most recent audited financial statements or a pre-determined formula. It is crucial to have a clear and fair valuation process to avoid disputes. 5. Purchase Terms: Determine how the purchase price will be paid (e.g., cash, installment payments) and the timeline for completing the transaction. Outline any restrictions or conditions on the sale, such as non-compete agreements or restrictions on selling shares to outside parties. 6. Dispute Resolution: Include provisions for resolving disputes, such as mediation or arbitration, to mitigate potential conflicts between the parties. 7. Governing Law: Specify that the agreement is governed by the laws of the state of Alabama. 8. Severability: Include a severability clause to ensure that if any part of the agreement is deemed unenforceable, the remaining portions remain intact. It is essential for shareholders of a closely held corporation in Alabama to consider creating a detailed Buy-Sell Agreement to safeguard their interests and provide clarity in the event of unforeseen circumstances. Always consult with legal professionals experienced in Alabama corporate law to ensure compliance and accuracy in drafting the agreement.
