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This form was designed for people carrying on a business through a
corporation. The simple agreement created with this form provides a solution
in the event of an irreconcilable difference between two shareholders or the
death of one of the shareholders.
Without a buy-sell agreement, for example, one of the shareholders could sell
his shares to a person of his or her choosing, which could force the other
shareholder to run the business with a stranger. In order to maintain control
of a corporation, there has to be an agreement on the disposal of shares in
favour of a third party, so that the remaining shareholder can exclude such
third parties from management of the corporation.
This agreement provides for two protective mechanisms. The first, applicable
in the event of a serious disagreement between the shareholders, is designed
to force one of the shareholders to relinquish his or her interest. A
shareholder may take the initiative of offering his or her shares to the other
shareholder and name his or her price. In order to force a prompt resolution
of the conflict, the agreement states that the shareholder being approached
must buy these shares within a set time period or sell his or her shares at
the same price. However, in order to prevent one party from taking advantage
of the other shareholders possible lack of liquidity, Section 4 subjects the
reciprocal obligation to the condition that a reasonable price be set.
The second protective mechanism provided under the agreement consists of a
commitment on the part of each shareholder to ensure that, in the event of his
or her death, his or her shares are sold to the other shareholder and paid for
out of the proceeds of a life insurance policy taken out for this express
purpose.
CAUTION
- This buy-sell agreement was designed for two shareholders only. It is not suitable for more complex situations with multiple shareholders. For 3 shareholders or more contact us.
- The terms of this agreement could be irreconcilable with those of a preexisting agreement. If your relationship is already governed by a shareholders agreement, ensure that this buy-sell agreement reflects your true intentions and add a reference to this effect.
- This agreement only governs one aspect of the relationship between shareholders. Some situations that may arise in the management of a corporation -- such as the need for additional capital contributions or the right to take part in the corporations strategic plans -- may require a more elaborate agreement.
- The shareholders may, by mutual agreement, override this agreement. The sole purpose of the buy-sell agreement is to provide a solution in the event of a disagreement between the shareholders or the death of one of the shareholders. It does not, however, freeze the parties' rights. Consequently, if one of the shareholders proposes to sell his or her shares to a third party with the written agreement of the other shareholder, Section 1 of this agreement does not apply.
- If, in the light of these conditions, you feel that this agreement does not meet your needs, do not hesitate to seek legal advice.
Before completing this form, you must arrange for the participation of the
corporation itself. This is to ensure that the corporation, an entity distinct
from its shareholders, is required to respect the agreement. The corporation
must delegate a person who can commit the corporation by his or her signature.
This person may be one of the shareholders, provided that he or she has been
expressly authorized to act in this capacity and provided that his or her
signature appears not only as a party to the agreement but also as the
representative of the corporation. The corporation's participation makes it
necessary to provide three copies of the agreement: one for each shareholder
and one for the records of the corporation.
The buy-sell agreement also assumes that each shareholder has taken out a life
insurance policy on the other shareholder s life, so that if one of the
shareholders dies, the surviving shareholder can purchase his or her shares.
If this step has not been taken when the agreement is signed, it must be taken
as quickly as possible thereafter.
Lastly, application of this agreement assumes that the shareholders perform a
periodic valuation of the shares of the corporation. Appendix A is designed
for this purpose. Please note that a valuation is only valid for 12 months.
The purpose of this condition is to avoid fixing the share value for
excessively long periods of time. In order to respect the spirit of the
agreement, you should review Appendix A regularly, particularly if important
events affect the share value substantially.
Agreement in text format - click to open the Buy-Sell Agreement in a new window and then print it.
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Agreement in the Word format - click to download the Word version of the Buy-Sell Agreement (open it or save it to disk). You may then fill in the required fields or modify it to suit your needs.
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