These agreements may also give the corporation or shareholders the right of first refusal should the stock become available due to the death of a shareholder or because a shareholder wishes to sell her stock. Victor Heat Controls Inc. By prior written agreement, if either individual dies, retires, or becomes totally disabled, the other shareholder is required to purchase the shares, thus becoming the sole shareholder. This is an example of a cross- purchase agreement. Disability buy-out is a sensitive subject for employee shareholders to discuss. However, a disabled corporate employee cannot be carried for very long in a small business.
Most businesses use a disability buy-out period of between three and six months.
In other words, if one of the employee shareholders becomes totally disabled for a period of three months, on the first day of the fourth month, the corporate employee's stock is automatically sold back to the corporation at a disability buy-out price. The corporation needs to discuss the possibility of one of the shareholders finding a nonrelated third party to buy his stock. Or does the corporation want to restrict rights and only allow the shareholders to sell back to the corporation itself. There is quite a danger in allowing for unrelated third parties to make offers on stock of closely held corporations. Obviously a competitor could make an offer, making it hard to tell if it was a bona fide offer or just a ploy to drive the stock price up so that the remaining shareholders would have to pay a higher price to repurchase the stock.