A shareholders’ agreement is a contract entered into between a company and some or all of its shareholders. It can deal with all aspects of the relationship between the parties, including the personal rights and obligations of the shareholders. Together with the company’s articles of association a shareholders’ agreement creates internal “rules” by which a company is governed.
The main reason to put a shareholders’ agreement in place early on in the lifecycle of a company is that it is generally much quicker, cheaper and easier to do so than trying to negotiate a settlement in the event that a dispute arises and no agreement is in place to determine how such dispute will be resolved.
Partnership agreements are written documents that explicitly detail the relationship between the business partners and their individual obligations and contributions to the partnership. Since partnership agreements should cover all possible business situations that could arise during the partnership’s life, the documents are often complex; legal counsel in drafting and reviewing the finished contract is generally recommended. If a partnership does not have a partnership agreement in place when it dissolves, the guidelines of the Uniform Partnership Act and various state laws will determine how the assets and debts of the partnership are distributed.
Agreement The buy-sell agreement is one of the most important elements of any partnership agreement. Lance Wallach summarized the problem in an article for Accounting Today: “Large problems can result from the death, incapacity, resignation, etc., of one of the owners,” Wallach wrote. “How would the decedent’s heirs liquidate the business interest to pay expenses and taxes? What would happen if an heir or an unknown outside buyer of the decedent’s share decides to interfere with the business? Could the business or other owners afford to buy back the decedent’s ownership interests?”
A buy-sell agreement is intended to forestall all such problems. In essence, it specifies the terms of a buyout in the event of death, divorce, disability, or retirement. The buy-sell agreement has become a “must” in many instances in which a partnership is seeking financing—a loan or a lease. Lenders want to see the agreement and study its provisions.
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