A repurchase agreement facilitates the orderly transfer of business interests when certain events occur. A sales contract: eliminate the need to negotiate the price. A detailed and pre-established pricing mechanism, defined in a purchase-sale contract, can relieve the heirs of the burden of negotiating a purchase price. Before deciding which version of a sales contract is best for your business, you should consider several considerations, including: collateral from an owner`s interest. While business owners can be hard to find to find something positive about an owner mortgage their interest as collateral for a loan, there may be some benefit. If the sales contract does not authorize the owner to mortgage interest, the creditor may argue that the provisions of the agreement do not apply to the involuntary transfer of a enforcement execution. By explicitly granting the collateral of an interest, the sales contract can give non-solvency owners a chance to heal or the ability to purchase the creditor`s interest. In addition, a repurchase agreement may include a pre-defined valuation clause in the event of a triggering event. Some purchase contracts contain a specified value or formal valuation clauses, while others defer the use of an independent third party, for example. B example of an accountant or a corporate controller, to determine regularly (for example. B each year) value. The terms of financing and payment of the purchase may also be included in the repurchase agreement.
In theory, this type of clause should reduce value conflicts between purchase and sale owners, but this is not always the case in practice. Buyback contracts often allow for certain transfers of interest by owners that do not trigger a pre-emption right. For example, transfers to revoked trusts are very often permitted, as are transfers to direct family members. The opposite problem of evicting the family of the deceased is just as common. In one case, we saw that there were three shareholders and that the deceased owner owned one-third of the business. The spouse was told that there was no money to buy the stock, that he would receive a third of the proceeds if a dividend was paid or if the business was sold… but at the time, there were no plans to sell the business or pay dividends. Desperate, she asked him to buy the stock. They didn`t want it, told her, and a few years later she bought her interest in iron pfennigs on the dollar.
Because it was a minority owner and the company is not normally required to hire owners, declare dividends or sell itself, it had no effective power (or money) to fight. They had the right to ignore her, and she owned shares that were worthless. √ If it is an S company, it is advisable to include provisions in the buy-sell to ensure that the entity does not lose its S status. Buyback contracts are useful instruments for an orderly transition of stakes in private companies.