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Let's assume you agree that your corporation should have a buy-sell agreement, to at least cover the situations where a shareholder wants to sell his or her shares or where a shareholder dies or becomes seriously disabled. To cover the first situation, where one of the shareholders wants to sell his or her interest and leave the corporation, what will the buy-sell agreement terms cover and what will they typically say?

First, note that it is not necessary to have provisions saying that a shareholder who wants to sell must first offer the shares to the corporation or to the other shareholders. This is because a shareholder may always and at any time approach the other shareholders and try to negotiate a sale, and negotiate the terms of the sale at that time. The important situation to cover is where a shareholder wants to sell to a third-party.

If any Shareholder receives a bona fide, non-collusive offer to purchase all or any portion of his or her shares, which such Shareholder intends to accept, he or she shall first give to each of the other Shareholders and the Corporation notice of intention to sell or otherwise transfer. The notice shall state the name and address of the proposed transferee, the offer price, type of consideration and all other terms and conditions of the offer.
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The agreement would go on to say that the other shareholders will then have an opportunity to purchase the shares, with a provision similar to the following: Each of the other Shareholders shall then have the option, exercisable by giving notice to each of the other Shareholders within Thirty (30) days following the date on which such notice of intention to transfer is given, to purchase the shares proposed to be transferred. If more than one Shareholder shall exercise the option provided by this Section, then unless they shall otherwise agree, they shall purchase the shares proposed to be transferred in proportion to their respective share holdings on the date the notice of intention to transfer was given (disregarding the holdings of the offering Shareholder and all other Shareholders not exercising such option).


What if none of the other shareholders want to buy or are able to buy the shares? The option to buy would then go to the corporation, with the agreement providing for some variation of the following:

If none of the Shareholders exercise the option provided by the foregoing Section, the Corporation shall then have the option, exercisable by giving notice to each of the Shareholders within Sixty (60) days following the date on which such notice of intention to transfer is given, to purchase the shares proposed to be transferred.


What if the corporation does not want to or is unable to buy the shares? The shareholder wishing to sell would then be able to sell his or her shares to the third-party buyer, with some restrictions. The provision permitting him or her to do so would read something like the following:

If none of the Shareholders exercise the option provided under the foregoing, and the Corporation does not exercise the option provided under the foregoing, then upon expiration of the aforesaid option periods the Shareholder wishing to transfer the shares proposed to be transferred shall be free to do so, but only to the same transferee, and upon the same terms and conditions stated in his or her notice of intention to transfer. Such transfer must be completed within One Hundred Twenty (120) days following the expiration of the applicable option period. Following the transfer, the shares shall again be restricted by, and may not be transferred without full compliance with, this Agreement.