– Or –
The Right-of-First-Refusal is a common provision in buy-sell agreements. This provision gives existing business partners the opportunity to purchase a departing partner's shares before they are offered to an outside party. The shares must be offered to existing partners at a specified price outlined in the buy-sell agreement. This protects existing owners by allowing the business to remain in their hands.
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Come-Along Rights protect minority shareholders in a buy-sell agreement by allowing them to participate in any sales initiated by majority shareholders.
If a majority shareholder receives an offer, the minority shareholders can "come along" and sell their shares at the same price and under the same conditions offered to majority shareholders. This ensures minority shareholders are not excluded from the deal or forced to sell at a discount.
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Drag-Along Rights protect majority shareholders in a buy-sell agreement by allowing them to force minority shareholders to join in the sale of a company.
If a majority shareholder receives an offer to sell the company, they can require minority shareholders to sell their own shares on the same terms and conditions. This provision is designed to prevent minority shareholders from blocking a potential sale opportunity.
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Stock Redemption Agreements are buy-sell agreements where the company owns life insurance policies on each partner. When a partner dies, the company buys out the deceased partner's estate with the insurance proceeds. This retires the deceased partner's stock and increases the surviving partner's interests proportionally. Stock redemption agreements differ from Cross Purchase Agreements, where the partners own the insurance policies.
There are pros and cons to different funding arrangements in buy-sell agreements. A competent exit planning advisor can provide personalized guidance.
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