What are buy-sell provisions?

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Buy-sell provisions are a set of contractual arrangements included in a shareholder agreement, operating agreement, or other legal document governing a North Carolina company that govern the sale or transfer of ownership interests in the company. These provisions outline the process for buying and selling shares of the company and can help ensure a smooth transfer of ownership when a shareholder wants to sell their shares or when an unexpected event occurs, such as the death or disability of a shareholder.

There are generally two types of buy-sell provisions: mandatory and optional. Mandatory buy-sell provisions require that shareholders sell their shares under certain circumstances, such as death, disability, retirement, or termination of employment. Optional buy-sell provisions, on the other hand, give shareholders the right to sell their shares under certain circumstances, but do not require them to do so.

Buy-sell provisions typically include a valuation mechanism that establishes the price at which shares will be sold. This mechanism can be based on a variety of factors, including the book value of the company, a multiple of earnings or revenue, or a formula based on the value of similar companies in the industry.

Other common elements of buy-sell provisions include the rights and obligations of the parties involved in the sale, such as the seller, the buyer, and the company, as well as any restrictions on the transfer of shares, such as rights of first refusal or tag-along provisions.

Overall, buy-sell provisions are an important tool for protecting the interests of shareholders and ensuring a smooth transition of ownership in a North Carolina company.

Will Blackton is a business lawyer based in Raleigh, North Carolina. You can reach Will at wblackton@bobllaw.com or (919) 636-5979.

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