investment bank logoinvestment bank logoinvestment bank logoinvestment bank logo
  • ADVISORY
    • BUY SIDE M&A
    • SELL SIDE M&A
    • CAPITAL RAISE
    • BUSINESS VALUATIONS
  • DEALS
  • ABOUT
  • CONTACT

Shareholder Agreement Triggers

When you craft your buy-sell agreement, there are basic boiler-plate inclusions which should not be ignored which will trigger one party’s right or obligation to buyout another party under the agreement. Some of the worst litigation occurs when buy-sell agreements were not crafted or crafted poorly when businesses first started. The following are some of the standard triggers which will result in a buyout of one or more of the company founders.

  • Disability or death of the owner. If the owner becomes incapacitated and cannot fulfill the duties of his/her job, then usually the best option is a buyout of stock. This option helps to mitigate risk and pass on stock value to the estate in the event of untimely death. There are numerous ways to structure death and disability trigger options in buy-sell agreements all of which can be fulfilled or supplemented using some form of life insurance.
  • Divorce of the owner. Without a buyout trigger, the divorce of an owner can put the company’s longevity at risk, especially if a vindictive spouse feels the need to relinquish rights in the company. It’s best to avoid drama and require a buyout trigger in the event of spousal divorce.
  • Personal bankruptcy of the owner entrepreneur. Similar to divorce, getting the company–which is generally a separate entity–tied up in complex divorce procedings can not only mean a waste of time for company management, but also can creat uncertainty for company management over particular voting rights of company stock. Buyout rights effectively neutralize any potential actions against on the part of other third parties in the case of divorce and bankruptcy.
  • Owner expulsion. Kicking out an owner is almost always difficult to discuss and resolve, but like a tree, it often requires removing one of the branches so the tree might survive. There is no limit to the opportunity given to a great owner-employee, but one bad apple can spoil the entire business and its profitable cash flow. Triggers like this are generally structured to include super-high majority from all voting blocks of stock. This usually means north of 75% must agree someone needs voted off the island.
  • Cash out and/or retirement of an owner. Owner retirement at the time of business sale represents a huge part of what we do and perhaps the most common reason for exit from profitable business deals.

Performing owner buyouts will remain a significant aspect for business owners in various fields over the coming decade as millions of baby boomers look to sell companies. Buyouts can be as complex as you would like to make them based on the individual needs of the respective corporations. Funding owner buyouts in your organization can also prove difficult.

 

  • Author
  • Recent Posts
Nate Nead
Nate Nead
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC, a middle-marketing M&A and capital advisory firm. Nate works with corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He holds Series 79, 82 & 63 FINRA licenses and has facilitated numerous successful engagements across various verticals. Four Points Capital Partners, LLC a member of FINRA and SIPC. Nate resides in Seattle, Washington. Check the background of this Broker-Dealer and its registered investment professionals on FINRA's BrokerCheck.
Nate Nead
Latest posts by Nate Nead (see all)
  • Covid-19 Impact on US Private Capital Raising Activity in 2020 - May 27, 2021
  • Healthcare 2021: Trends, M&A & Valuations - May 19, 2021
  • 2021 Outlook on Media & Telecom M&A Transactions - May 12, 2021
Nate Nead
Nate Nead
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC, a middle-marketing M&A and capital advisory firm. Nate works with corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He holds Series 79, 82 & 63 FINRA licenses and has facilitated numerous successful engagements across various verticals. Four Points Capital Partners, LLC a member of FINRA and SIPC. Nate resides in Seattle, Washington. Check the background of this investment professional on FINRA's BrokerCheck.

Related posts

May 27, 2021

Covid-19 Impact on US Private Capital Raising Activity in 2020


Read more
May 19, 2021

Healthcare 2021: Trends, M&A & Valuations


Read more
May 12, 2021

2021 Outlook on Media & Telecom M&A Transactions


Read more

Get in touch

[]
1
Step 1

keyboard_arrow_leftPrevious
Nextkeyboard_arrow_right


investment banking Logo

Services

  • M&A Advisory
  • Sell-Side M&A
  • Buy-Side M&A
  • Raise Capital

About

  • About Us
  • Our Deals
  • M&A Blog
  • Contact Us

© Copyright Deal Capital Partners, LLC.

Privacy Policy | Terms of Service | Listing Agreement

This does not constitute an offer to sell or a solicitation of an offer to buy any securities and may not be used or relied upon in connection with any offer or sale of securities. An offer or solicitation can be made only through the delivery of a final private placement offering memorandum and subscription agreement, and will be subject to the terms and conditions and risks delivered in such documents.

M&A advisory services offered through MergersandAcquisitions.net. Securities transactions are conducted through Four Points Capital Partners, LLC (4 Points), a member of FINRA and SIPC. Deal Capital Partners, LLC and 4 Points are not affiliated. Check the background of this Broker-Dealer and its registered investment professionals on FINRA's BrokerCheck.

An Invest.net Partner