Connecticut Shareholders' Agreement with Buy-Sell Agreement Allowing Corporation the First Right of Refusal to Purchase the Shares of Deceased Shareholder should the Beneficiaries of the Deceased Shareholder Desire to Sell such Shares

• Category: Corporations - Shareholders and Stock
• State: Multi-State
• Control #: US-02629BG
• Format: Word; Rich Text

Description

A corporation whose shares are held by a single shareholder or a closely-knit group of shareholders (such as a family) is known as a close corporation. The shares of stock are not traded publicly. Many of these types of corporations are small firms that in the past would have been operated as a sole proprietorship or partnership, but have been incorporated in order to obtain the advantages of limited liability or a tax benefit or both.

A buy-sell agreement is an agreement between the owners (shareholders) of a firm, defining their mutual obligations, privileges, protections, and rights. This form is a generic example that may be referred to when preparing such a form for your particular state. It is for illustrative purposes only. Local laws should be consulted to determine any specific requirements for such a form in a particular jurisdiction.

A shareholders' agreement is a legally binding document that outlines the rights and obligations of shareholders within a corporation. In Connecticut, shareholders' agreements often include a buy-sell agreement that grants the corporation the first right of refusal to purchase the shares of a deceased shareholder, in case the beneficiaries of the deceased shareholder wish to sell. The buy-sell agreement with the first right of refusal clause is designed to provide the corporation with the opportunity to control the ownership structure of the company and prevent unwanted external parties from becoming shareholders. This right ensures that the corporation has the option to buy the shares before they are sold to any third party. There are several types of Connecticut shareholders' agreements with buy-sell agreements. These may include: 1. The fixed price agreement: This type of agreement sets a predetermined price at which the corporation can exercise its right of refusal to purchase the deceased shareholder's shares. The price can be based on a fixed formula, valuation method, or a prearranged price determined during the creation of the agreement. 2. The formula agreement: In this agreement, a specific formula is established to determine the price of the shares. The formula can be based on factors such as company earnings, book value, net assets, or other established metrics. 3. The appraisal agreement: This agreement involves the use of a professional appraiser to determine the fair market value of the deceased shareholder's shares. The appraisal process provides an unbiased valuation, ensuring a fair price for the shares. 4. The shotgun agreement: This agreement allows one party to initiate the purchase or sell of shares at a predetermined price. The other party then has the option to either buy or sell at that price. This type of agreement can incentivize negotiation and reach a mutually agreeable outcome. Connecticut's shareholders' agreements with buy-sell agreements are crucial for ensuring the smooth transfer of ownership upon the death of a shareholder. They protect the corporation's interests by allowing it to maintain control over the shares and preventing unwanted shareholders from participating in the company. These agreements provide clarity, transparency, and fair valuation methods when determining the purchase price of shares, mitigating disputes and fostering strong corporate governance.