If two or more people own a company – what happens if one of the people….
- Retires from the business
- Becomes disabled
- Files for bankruptcy
- Goes through a matrimonial breakdown
Every corporation with more than one owner should have a shareholder’s agreement. A shareholder’s agreement sets out the rights and obligations of both the shareholder(s) and the corporation. It’s important that the shareholders complete, understand & periodically review this contract.
The buy/sell provisions in the shareholders agreement should detail the mechanics for the transfer of shares in the following situations (1-5) outlined above.
Life insurance is an important part of #3. If one shareholder dies, the proceeds from a life insurance policy provides liquidity to purchase the shares from the deceased shareholders estate.