Utah 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. Utah Buy-Sell Agreement between Two Shareholders of Closely Held Corporation — Detailed Description and Types A Utah Buy-Sell Agreement is a legally binding contract entered into by two shareholders of a closely held corporation. This agreement outlines the terms and conditions for the sale and purchase of shares in the event of specified triggering events, such as the death, disability, retirement, or voluntary or involuntary termination of one of the shareholders. One type of Utah Buy-Sell Agreement is the Cross-Purchase Agreement. In this arrangement, each shareholder agrees to purchase the shares of the other shareholder upon the occurrence of a triggering event. For example, if one shareholder passes away, the surviving shareholder will buy the deceased shareholder's shares, ensuring continuity and control of the corporation. Another type is the Stock Redemption Agreement. In this scenario, the corporation itself undertakes the obligation to purchase the shares of the departing shareholder. The corporation essentially becomes the buyer of the shares, using its own funds or through financing arrangements facilitated by life insurance policies or other financial instruments. A third type of Utah Buy-Sell Agreement is the Hybrid Agreement, which combines elements of both the Cross-Purchase and Stock Redemption Agreements. Under this structure, some triggering events may result in the surviving shareholder purchasing the shares, while others may require the corporation to redeem the shares. This flexible approach allows shareholders to tailor the agreement to best meet their specific needs and circumstances. The Utah Buy-Sell Agreement typically includes various important provisions, including: 1. Purchase price determination: The agreement should outline a method or formula to determine the price at which shares will be bought and sold. This may include factors such as book value, fair market value, or a predetermined fixed price. 2. Funding mechanisms: The agreement should specify how the purchasing shareholder or the corporation will finance the purchase of the shares. Common funding mechanisms include cash payments, installment payments, loans, or through life insurance policies. 3. Preemptive rights: The agreement may grant preemptive rights to the remaining shareholder(s) to have the first opportunity to purchase any shares being sold by the departing shareholder before offering them to an outside party. 4. Restrictions on transfer: The agreement may contain restrictions on the transferability of shares, ensuring that shares can only be sold to existing shareholders or the corporation. This helps maintain control within the closely held corporation and prevents unwanted third-party ownership. 5. Dispute resolution: The agreement should include provisions for resolving potential disputes, such as mediation or arbitration, to avoid costly litigation in the event of disagreements between shareholders. Utah Buy-Sell Agreements between Two Shareholders of Closely Held Corporations are crucial to ensure a smooth transition of ownership and provide a clear framework for dealing with triggering events. It protects the interests of both shareholders and helps maintain the stability and continuity of the closely held corporation in Utah.

Utah Buy-Sell Agreement between Two Shareholders of Closely Held Corporation — Detailed Description and Types A Utah Buy-Sell Agreement is a legally binding contract entered into by two shareholders of a closely held corporation. This agreement outlines the terms and conditions for the sale and purchase of shares in the event of specified triggering events, such as the death, disability, retirement, or voluntary or involuntary termination of one of the shareholders. One type of Utah Buy-Sell Agreement is the Cross-Purchase Agreement. In this arrangement, each shareholder agrees to purchase the shares of the other shareholder upon the occurrence of a triggering event. For example, if one shareholder passes away, the surviving shareholder will buy the deceased shareholder's shares, ensuring continuity and control of the corporation. Another type is the Stock Redemption Agreement. In this scenario, the corporation itself undertakes the obligation to purchase the shares of the departing shareholder. The corporation essentially becomes the buyer of the shares, using its own funds or through financing arrangements facilitated by life insurance policies or other financial instruments. A third type of Utah Buy-Sell Agreement is the Hybrid Agreement, which combines elements of both the Cross-Purchase and Stock Redemption Agreements. Under this structure, some triggering events may result in the surviving shareholder purchasing the shares, while others may require the corporation to redeem the shares. This flexible approach allows shareholders to tailor the agreement to best meet their specific needs and circumstances. The Utah Buy-Sell Agreement typically includes various important provisions, including: 1. Purchase price determination: The agreement should outline a method or formula to determine the price at which shares will be bought and sold. This may include factors such as book value, fair market value, or a predetermined fixed price. 2. Funding mechanisms: The agreement should specify how the purchasing shareholder or the corporation will finance the purchase of the shares. Common funding mechanisms include cash payments, installment payments, loans, or through life insurance policies. 3. Preemptive rights: The agreement may grant preemptive rights to the remaining shareholder(s) to have the first opportunity to purchase any shares being sold by the departing shareholder before offering them to an outside party. 4. Restrictions on transfer: The agreement may contain restrictions on the transferability of shares, ensuring that shares can only be sold to existing shareholders or the corporation. This helps maintain control within the closely held corporation and prevents unwanted third-party ownership. 5. Dispute resolution: The agreement should include provisions for resolving potential disputes, such as mediation or arbitration, to avoid costly litigation in the event of disagreements between shareholders. Utah Buy-Sell Agreements between Two Shareholders of Closely Held Corporations are crucial to ensure a smooth transition of ownership and provide a clear framework for dealing with triggering events. It protects the interests of both shareholders and helps maintain the stability and continuity of the closely held corporation in Utah.