Oklahoma 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, also known as a shareholders' agreement, is a legally binding contract that outlines the terms and conditions for the transfer of shares between two shareholders of a closely held corporation in Oklahoma. This agreement serves as a mechanism to ensure the smooth transition of ownership and protect the interests of both parties involved. Several types of buy-sell agreements exist, including: 1. Cross-Purchase Agreement: A cross-purchase agreement is a type of buy-sell agreement where the remaining shareholders have the option to buy the shares of a departing shareholder. The remaining shareholders use their personal funds to purchase the shares in proportion to their ownership percentages. This agreement is often suitable for corporations with a few shareholders. 2. Entity Redemption Agreement: In an entity redemption agreement, the corporation itself agrees to redeem the shares of a departing shareholder. The corporation uses its funds or borrows money to buy back the shares. This type of agreement is typically beneficial when there are numerous shareholders within the closely held corporation. 3. Hybrid Agreement: A hybrid agreement combines elements of both cross-purchase and entity redemption agreements. They offer flexibility by allowing both the remaining shareholders and the corporation to buy back the shares depending on the circumstances. This type of agreement can cater to the varying needs and financial situations of the shareholders. An Oklahoma buy-sell agreement includes various key provisions that determine the agreement's terms and conditions. These provisions may include: 1. Triggering Events: The agreement should clearly define the triggering events that lead to the buyout, such as death, disability, retirement, bankruptcy, divorce, or voluntary exit. Specifying these events ensures that the agreement becomes effective only under certain circumstances. 2. Valuation Method: The agreement should outline the method for valuing the shares to establish a fair price. Methods may include using a predetermined formula, independent appraisal, or mutual agreement between the parties involved. This provision safeguards both shareholders from discrepancies in the valuation process. 3. Funding Mechanism: The agreement should state how the purchasing party will fund the buyout. Common funding methods include cash payments, installment payments, borrowing funds, or utilizing insurance policies. This provision ensures that the transferring shareholder receives appropriate compensation and the purchasing party can fulfill their obligations. 4. Right of First Refusal: This provision grants the remaining shareholders the first opportunity to purchase the shares of a departing shareholder before considering outside buyers. This protects the continuity and stability of the closely held corporation while retaining control within the existing shareholder base. 5. Non-Compete Clause: A non-compete clause may be included in the agreement, prohibiting the departing shareholder from competing with the corporation for a specified period in a geographic location. This provision aims to protect the corporation's competitive advantage and prevent potential conflicts of interest. In summary, an Oklahoma buy-sell agreement between two shareholders of a closely held corporation is a vital contract that safeguards the interests of the shareholders in the event of an ownership transfer. Cross-purchase, entity redemption, and hybrid agreements are the common types of buy-sell agreements. The agreement typically includes provisions related to triggering events, valuation methods, funding mechanisms, the right of first refusal, and non-compete clauses. Seek professional legal assistance to tailor the agreement to the specific needs and circumstances of the corporation and its shareholders.

A buy-sell agreement, also known as a shareholders' agreement, is a legally binding contract that outlines the terms and conditions for the transfer of shares between two shareholders of a closely held corporation in Oklahoma. This agreement serves as a mechanism to ensure the smooth transition of ownership and protect the interests of both parties involved. Several types of buy-sell agreements exist, including: 1. Cross-Purchase Agreement: A cross-purchase agreement is a type of buy-sell agreement where the remaining shareholders have the option to buy the shares of a departing shareholder. The remaining shareholders use their personal funds to purchase the shares in proportion to their ownership percentages. This agreement is often suitable for corporations with a few shareholders. 2. Entity Redemption Agreement: In an entity redemption agreement, the corporation itself agrees to redeem the shares of a departing shareholder. The corporation uses its funds or borrows money to buy back the shares. This type of agreement is typically beneficial when there are numerous shareholders within the closely held corporation. 3. Hybrid Agreement: A hybrid agreement combines elements of both cross-purchase and entity redemption agreements. They offer flexibility by allowing both the remaining shareholders and the corporation to buy back the shares depending on the circumstances. This type of agreement can cater to the varying needs and financial situations of the shareholders. An Oklahoma buy-sell agreement includes various key provisions that determine the agreement's terms and conditions. These provisions may include: 1. Triggering Events: The agreement should clearly define the triggering events that lead to the buyout, such as death, disability, retirement, bankruptcy, divorce, or voluntary exit. Specifying these events ensures that the agreement becomes effective only under certain circumstances. 2. Valuation Method: The agreement should outline the method for valuing the shares to establish a fair price. Methods may include using a predetermined formula, independent appraisal, or mutual agreement between the parties involved. This provision safeguards both shareholders from discrepancies in the valuation process. 3. Funding Mechanism: The agreement should state how the purchasing party will fund the buyout. Common funding methods include cash payments, installment payments, borrowing funds, or utilizing insurance policies. This provision ensures that the transferring shareholder receives appropriate compensation and the purchasing party can fulfill their obligations. 4. Right of First Refusal: This provision grants the remaining shareholders the first opportunity to purchase the shares of a departing shareholder before considering outside buyers. This protects the continuity and stability of the closely held corporation while retaining control within the existing shareholder base. 5. Non-Compete Clause: A non-compete clause may be included in the agreement, prohibiting the departing shareholder from competing with the corporation for a specified period in a geographic location. This provision aims to protect the corporation's competitive advantage and prevent potential conflicts of interest. In summary, an Oklahoma buy-sell agreement between two shareholders of a closely held corporation is a vital contract that safeguards the interests of the shareholders in the event of an ownership transfer. Cross-purchase, entity redemption, and hybrid agreements are the common types of buy-sell agreements. The agreement typically includes provisions related to triggering events, valuation methods, funding mechanisms, the right of first refusal, and non-compete clauses. Seek professional legal assistance to tailor the agreement to the specific needs and circumstances of the corporation and its shareholders.