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Buy-Sell Agreements:

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A buy-sell agreement or a ‘buyout agreement’ is a contract between co-owners or shareholders of a business that governs the situation where a co-owner no longer can, or wishes, to fulfil their position.  This may be due to the fact that they wish to leave the business or that other co-owners wish to remove them or they may simply be unable to continue to fulfil their duties, due to death or disability. A buy-sell agreement is, effectively, a form of Shareholder’s Agreement.  A Shareholder’s Agreement is a contract between some or all of the shareholders of a company in which they agree to regulate the exercise of some of their rights as shareholders. A qualified and skilled private client services lawyer will be able to have regard to your matters and the issues you may face, to ensure that any buy-sell agreement is drafted in a manner that protects your interests and the wellbeing of your business.

Buy- Sell Agreements may be enforced similarly to other contracts and may attract contractual remedies such as specific performance, injunction and damages. However, care needs to be taken that the agreement does not conflict with the company’s statutory rights and obligations or does not seek to interfere with directors’ fiduciary duties to the company.  Buy-Sell Agreements can be also be utilised to protect minority shareholders, particularly against oppression from the majority. Buy-Sell agreements may be the subject of litigation between directors and shareholders of a company, such as an executive that may have a very generous ‘golden handshake’ drafted in their contract of employment which shareholders may object to.  It may be good business practice to consult with legal and financial planning professionals to ensure that a buy-sell arrangement is adequately funded and to guarantee that there will be sufficient capital to facilitate the circumstances in which a buy-sell event is triggered.

A buy-sell agreement is necessary for a number of reasons.  A buy sell agreement contractually sets out who can buy a departing shareholder’s share of the business, what events will trigger a buyout (such as death, disability, retirement or departure) and how the applicable shares will be valued. A qualified commercial lawyer will be able to consider the factual matrix, whether the contract should be drafted in a wide or narrow sense, what rights and obligations should be imposed and other factors to ensure that your interests are adequately protected. Proper legal advice from a Commercial Lawyer may be necessary to extract the relevant information and concerns as well as to determine the appropriate clauses and provisions that should be drafted into your buy-sell agreement.

If you need further legal advice on your matter, you may book an appointment with us by telephone on 02 9233 4048 or by email to info@navado.com.au.  

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This webpage (and any material or wording appearing on this webpage) is provided for general information purposes only and does not constitute any Tax or Accounting Advice. It does not take into account your objectives, financial situation or needs or your instructions or all of the relevant facts and/or circumstances. Navado accepts no responsibility to any person who relies on the information provided on this website. We further refer you to our Disclaimer.

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