Stock Purchase and Bonus Agreements
What We Do
Frequently, we are asked to write agreements for the buying or selling of private corporation stock for various reasons. It’s very common for a corporation or other business entity to reach a point of “critical mass” where they need to bring investors into the mix in order to further finance operations. Likewise, many corporations choose to incentivize their employees through the use of stock options or stock bonuses. We also lend our expertise in writing or revising an existing “buy sell agreement” for the corporation’s current shareholders.
Bringing an investor into your business can be an exciting and sometimes frightening prospect. Frequently investors desire a significant ownership stake in the business in exchange for their passive investment of cash. In order to safeguard both the current shareholders and the incoming investor, we will formulate a corporate stock purchase agreement that will be designed to ensure the ongoing health of the business while simultaneously protecting the investor’s interest.
Stock Bonus Agreements
There are many ways to incentivize your business’ employees, one of which is by granting them an ownership interest in the company. Small businesses that want to grant an employee an ownership incentive will issue a stock bonus to the employee. A stock bonus agreement is simply an agreement whereby the company agrees to issue a certain number of shares of stock or a certain value in stock to an employee in exchange for services rendered to the organization. Often, the organization will desire for the employee to agree to sell the stock back for an agreed price or its fair market value upon termination of the relationship between the company and the employee, that way the company does not have disgruntled former employees as shareholders.
Employee Stock Option Plan (ESOP)
Another way to incentivize employees is by setting up an employee stock option plan (ESOP). This is a plan whereby stock options are issued to the employer and the stock is set aside into a “trust” account for the benefit of the employees until such time as they choose to exercise their options. An ESOP is a more complex and expensive process than a Stock Bonus Agreement and is usually reserved for larger, more complex situations.
Buy Sell Agreements
Buy Sell Agreements are an essential part of an organization’s planning. A well-written Buy Sell Agreement will protect both the shareholder and the company should the company desire to redeem stock or the shareholder desire to sell stock to a third party. Frequently, a Buy Sell Agreement will have a right of first refusal for the corporation and a second right of refusal to the other shareholders to purchase a shareholder’s stock in the corporation prior to allowing a sale to a third party. This protects the corporation from the influx of unfamiliar third party investors while simultaneously protecting the shareholder’s ability to sell his or her stock in the corporation. The Buy Sell Agreement will likewise usually include an insurance provision, whereby the company can purchase insurance to fund the redemption of a shareholder’s stock upon his or her death.
As you can imagine, there are innumerable variations of the above-referenced agreements and many other types of agreements that Bennett and Bennett can write in order to protect your business and shareholders.
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