A buy-sell agreement is an agreement between the owners (shareholders) of a firm, defining their mutual obligations, privileges, protections, and rights.
A Hawaii Buy-Sell Agreement is a legally binding contract between two shareholders of a closely held corporation in Hawaii. This agreement outlines the terms and conditions for buying and selling shares of the corporation in the event of certain triggering events, such as death, disability, retirement, or voluntary sale. The purpose of a Hawaii Buy-Sell Agreement is to establish a framework to ensure a smooth transition of ownership and to protect the interests of the shareholders and the corporation. It helps prevent disputes and provides a clear process for valuing and transferring shares. There are two main types of Hawaii Buy-Sell Agreements between two shareholders of a closely held corporation: 1. Cross-Purchase Agreement: In this type of agreement, each shareholder has the right and obligation to buy the shares of the other shareholder in the event of a triggering event. In essence, the remaining shareholder(s) can purchase the shares of the departing or deceased shareholder. 2. Stock Redemption Agreement: In this type of agreement, the corporation itself has the right and obligation to purchase the shares of the departing or deceased shareholder. The remaining shareholder(s) do not directly purchase the shares but receive the proceeds from the corporation's redemption. The Hawaii Buy-Sell Agreement typically includes several key components: 1. Triggering Events: It identifies specific events that would activate the agreement, such as death, disability, retirement, or voluntary sale. 2. Purchase Price: It establishes the method, formula, or criteria for determining the price at which the shares will be bought or sold. Common methods include book value, fair market value, or a pre-determined formula. 3. Funding Mechanism: It outlines how the purchasing obligations will be funded. Options may include using personal funds, insurance policies, or corporate funds. 4. Restrictions on Transfer: It may include provisions restricting the transfer of shares to outsiders without the approval of the other shareholder(s) or the corporation. 5. Dispute Resolution: It specifies how disputes arising from the agreement will be resolved, such as through mediation or arbitration. 6. Termination: It outlines the circumstances under which the agreement can be terminated, such as when all parties consent, when the corporation goes public, or when the corporation is sold. A Hawaii Buy-Sell Agreement provides clarity, protection, and peace of mind for the shareholders of a closely held corporation in Hawaii. It helps ensure a smooth transition of ownership and can avoid potential conflicts or disruptions in the business.
