At Cooper & Huber, LLP we often get this question:
Do I need a buy-sell agreement and a shareholders agreement or am I covered by the shareholders agreement from when the corporation was formed?
As the famous saying goes, “[I]t depends.” While there is some overlap, the buy-sell agreement is specifically tailored to what happens when one owners wants to sell or dies.
To recap, both a buy-sell agreement and a shareholders agreement are legal documents that are used to govern the relationship between business owners. However, they serve different purposes and address different issues.
A buy-sell agreement is a contract between co-owners of a business that outlines what happens in the event that one of the owners wants to sell their share or is forced to sell their share due to certain events, such as death or disability. This agreement sets the terms and conditions of the sale, including the purchase price and the method of payment.
On the other hand, a shareholder agreement is a document that governs the relationship between shareholders in a corporation. It outlines the rights and obligations of shareholders, the management of the corporation, the procedures for making decisions, and the transfer of shares.
While a buy-sell agreement typically addresses the sale of shares among co-owners of a business, a shareholder agreement may address a wider range of issues, including the management and control of the business, the distribution of profits, and the appointment of directors and officers.
Regardless, if you have been in business a while, it’s a good idea to dust off the leather brown corporate book sitting on the shelf to make sure the documents created years ago continue to work for your business today.
This blog post is written by attorneys at Cooper & Huber, LLP. It is for general educational purposes only and is not intended as legal advice or a solicitation for services. We hope it helps you or empowers you to reach out to an attorney when you need help with your personal or business matters. Cooper & Huber, LLP are outside general counsel attorneys in California. Contact us if you have any questions at 213-423-1163.