A buy-sell agreement is an agreement between the owners (shareholders) of a firm, defining their mutual obligations, privileges, protections, and rights.
A New Jersey Buy-Sell Agreement is a legally binding contract between two shareholders of a closely held corporation that outlines the terms and conditions of the sale or transfer of shares in the event of certain triggering events. This agreement serves as a safeguard to protect the interests of both shareholders and maintain the stability and continuity of the corporation. In New Jersey, there are different types of buy-sell agreements that can be utilized between two shareholders of a closely held corporation. Some of these variations include: 1. Cross-Purchase Agreement: This type of buy-sell agreement enables one shareholder to buy the shares of the other shareholder(s) upon a specific event, such as death, disability, retirement, or termination of employment. The purchasing shareholder uses their personal funds or obtains financing to acquire the shares. 2. Redemption Agreement: This agreement allows the closely held corporation itself to repurchase the shares of the departing or deceased shareholder. In this case, the corporation uses its own funds or obtains financing to buy back the shares. 3. Hybrid Agreement: A hybrid buy-sell agreement incorporates elements of both a cross-purchase and redemption agreement. This type of agreement provides flexibility for shareholders to choose whether they want to sell their shares to the corporation or to other shareholders, depending on the triggering event. Regardless of the specific type, a New Jersey Buy-Sell Agreement typically includes the following key provisions: 1. Purchase Price Determination: The agreement should specify the method or formula to determine the price at which the shares will be bought and sold. Common methods include a fixed price, a formula based on the book value or fair market value of the shares, or utilizing an independent appraiser. 2. Triggering Events: The agreement should outline the events that will trigger the buy-sell provision, such as death, disability, retirement, voluntary resignation, termination of employment, divorce, bankruptcy, or other specified events. 3. Terms of Transfer: It is essential to establish the terms and conditions under which the shares will be transferred, including timelines for completing the transfer, payment terms, and any necessary approvals or consents required. 4. Funding the Purchase: The agreement should address how the purchasing shareholder or the corporation will finance the purchase of the shares, whether through personal funds, a loan, or through corporate funds. 5. Right of First Refusal: The agreement may include a provision granting the remaining shareholder(s) the right of first refusal to purchase the departing shareholder's shares before they can be sold to a third party. 6. Dispute Resolution: A dispute resolution mechanism, such as mediation or arbitration, may be included to resolve any disagreements related to the buy-sell agreement. By having a well-crafted New Jersey Buy-Sell Agreement in place, shareholders of closely held corporations can ensure a smooth and efficient transfer of shares in the event of predefined triggering events, minimizing potential conflicts and disruptions to the business.
