Circumstance change and, if your shareholder agreement is sitting in a drawer gathering dust, put a note on your to-do list marked “important” to review it. The shareholder agreement (or an operating agreement for an LLC) typically protects the company and outlines what happens when a shareholder dies, is divorced, is incapacitated, or is terminated (for cause or not) and specifies how those shares will be redeemed. The following article by Chris Mercer provides a list of 9 characteristics of good buy-sell agreements and guidance for updating existing agreements:
As Chris Mercer points out, some agreements call for a formula which may be outdated, or simply state that shares will be redeemed for fair market value without specifying how that is to be determined. Other agreements are silent as to buy-sell provisions. We can provide advice on valuation issues for buy-sell agreements- just ask. We will be happy to work with your attorney, insurance agent and investment adviser to make sure your agreement is sound.