Ohio Buy-Sell Agreement between Two Shareholders of Closely Held Corporation

• Category: Corporations - Contracts
• State: Multi-State
• Control #: US-02553BG
• 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. A Buy-Sell Agreement is a crucial legal document that outlines the terms and conditions for the sale or transfer of shares between shareholders in a closely held corporation. In Ohio, such agreements are essential for protecting the interests of shareholders and maintaining the stability of the corporation. There are various types of Ohio Buy-Sell Agreements that shareholders can consider, including: 1. Cross-Purchase Agreement: This type of agreement allows individual shareholders to purchase the shares of a departing shareholder. The remaining shareholders agree to buy the exiting shareholder's shares at an agreed-upon price or through a predetermined formula. This ensures a smooth transition and prevents unwanted third-party involvement in the corporation's affairs. 2. Stock Redemption Agreement: In a Stock Redemption Agreement, the corporation itself purchases the shares of a departing shareholder. The remaining shareholders usually authorize the corporation to buy back the shares, and the price is determined either by a set formula or through negotiation. This type of agreement provides the remaining shareholders with an opportunity to maintain control of the corporation. 3. Hybrid Agreement: A Hybrid Agreement combines elements of both the Cross-Purchase and Stock Redemption Agreements. Under this arrangement, the remaining shareholders have the right to purchase the departing shareholder's shares, but if they decline, the corporation itself can step in and buy them. This type of agreement offers flexibility and allows for a smoother transition in case certain shareholders are unable or unwilling to buy the shares. 4. Wait-and-See Agreement: A Wait-and-See Agreement gives the remaining shareholders the option to decide which type of agreement (Cross-Purchase or Stock Redemption) to utilize when a shareholder departs. This allows the shareholders to assess the specific circumstances and financial considerations at the time of the sale, which may impact their ability to purchase the shares individually or involve the corporation in the transaction. Ohio Buy-Sell Agreements typically address important aspects such as: — Triggering Events: The events that can trigger a buyout, such as death, disability, retirement, or voluntary departure of a shareholder. — Valuation Method: A clear methodology for determining the value of the shares during a buyout. Options may include book value, fair market value, or an independent appraisal. — Funding Mechanism: The method by which the purchasing shareholders will finance the buyout, whether through personal assets, insurance policies, or corporate financing. — Restrictions on Transfer: Limitations on the transfer of shares to third parties without the consent of the remaining shareholders or the corporation, ensuring the corporation's continued closely held status. Ohio Buy-Sell Agreements between two shareholders of closely held corporations play a vital role in settling issues related to share transfers and maintaining the stability of the corporation. Seeking legal counsel is recommended to draft an agreement that aligns with the unique needs and circumstances of the shareholders and the corporation while complying with Ohio state laws and regulations.

A Buy-Sell Agreement is a crucial legal document that outlines the terms and conditions for the sale or transfer of shares between shareholders in a closely held corporation. In Ohio, such agreements are essential for protecting the interests of shareholders and maintaining the stability of the corporation. There are various types of Ohio Buy-Sell Agreements that shareholders can consider, including: 1. Cross-Purchase Agreement: This type of agreement allows individual shareholders to purchase the shares of a departing shareholder. The remaining shareholders agree to buy the exiting shareholder's shares at an agreed-upon price or through a predetermined formula. This ensures a smooth transition and prevents unwanted third-party involvement in the corporation's affairs. 2. Stock Redemption Agreement: In a Stock Redemption Agreement, the corporation itself purchases the shares of a departing shareholder. The remaining shareholders usually authorize the corporation to buy back the shares, and the price is determined either by a set formula or through negotiation. This type of agreement provides the remaining shareholders with an opportunity to maintain control of the corporation. 3. Hybrid Agreement: A Hybrid Agreement combines elements of both the Cross-Purchase and Stock Redemption Agreements. Under this arrangement, the remaining shareholders have the right to purchase the departing shareholder's shares, but if they decline, the corporation itself can step in and buy them. This type of agreement offers flexibility and allows for a smoother transition in case certain shareholders are unable or unwilling to buy the shares. 4. Wait-and-See Agreement: A Wait-and-See Agreement gives the remaining shareholders the option to decide which type of agreement (Cross-Purchase or Stock Redemption) to utilize when a shareholder departs. This allows the shareholders to assess the specific circumstances and financial considerations at the time of the sale, which may impact their ability to purchase the shares individually or involve the corporation in the transaction. Ohio Buy-Sell Agreements typically address important aspects such as: — Triggering Events: The events that can trigger a buyout, such as death, disability, retirement, or voluntary departure of a shareholder. — Valuation Method: A clear methodology for determining the value of the shares during a buyout. Options may include book value, fair market value, or an independent appraisal. — Funding Mechanism: The method by which the purchasing shareholders will finance the buyout, whether through personal assets, insurance policies, or corporate financing. — Restrictions on Transfer: Limitations on the transfer of shares to third parties without the consent of the remaining shareholders or the corporation, ensuring the corporation's continued closely held status. Ohio Buy-Sell Agreements between two shareholders of closely held corporations play a vital role in settling issues related to share transfers and maintaining the stability of the corporation. Seeking legal counsel is recommended to draft an agreement that aligns with the unique needs and circumstances of the shareholders and the corporation while complying with Ohio state laws and regulations.