A redemption type of buy-sell agreement could provide that if the company is unable or unwilling to purchase the stock, the other shareholders would be required to do so. Another disadvantage of a redemption approach is that it can drain the corporate capital base if the company is the sole purchaser. This drawback can be overcome by using life insurance proceeds for estate purchases, other shareholders as potential purchasers, installment payments over a period of years, or by contractually limiting annual purchases to an amount roughly equal to available cash flow. Although death is the key triggering event, the company may want to trigger the buy-sell upon the occurrence of certain events other than the death of a shareholder, such as retirement, withdrawal from employment, disability, competition with the company, divorce, or a contemplated sale to third parties. B. Specific Triggering Events.
Death is typically the key event in structuring a buy-sell agreement.
The remaining shareholders may likewise desire a buy-out to occur in order to prevent meddling by the disabled shareholder s spouse. The key point in a disability triggering provision is the procedure for determining when disability occurs. Withdrawal from Employment. The agreement could provide for different prices and terms of purchase depending on whether employment ceased due to a resignation or termination and, if a termination, whether it was with or without cause. The recent trend in cases generally supports a forced sale of stock upon termination of employment, assuming that the price was reasonable when set and that the parties acted in good faith.