LAUNDRY LIST OF CONSIDERATIONS FOR SHAREHOLDERS AGREEMENTS

Shareholders agreements are complex legal documents and must be individually tailored to meet the specific needs of the shareholders. The following is a list of considerations that should be accounted for in drafting such an agreement but is not exhaustive of the provisions that must be considered.

If you are considering a new corporation and shareholders agreement or revising your current one, seek the advice of an attorney familiar with such documents. Your shareholders agreement should be reviewed periodically to keep pace with changes in the law, and should be reviewed and revised everytime there is a material change in the shareholders or the terms each of you belive the corporation is operating under. Issues to consider given the economic reality of closely held corporations are:

I. Transfer Issues
A. Buy-Out of the Owner
1. Events requiring a buy-out
a. Death
b. Disability
c. Retirement
d. Withdrawal from the corporation
1. Voluntary
2. Involuntary
e. Bankruptcy
2. Ownership valuation
a. Appraisal
b. Fixed formula
c. Goodwill calculation
d. Salary continuation or Death benefits
3. Payout method
a. Death
1. Insurance proceeds
2. Amount of insurance and determining factors
3. Key Man insurance
b. Disability, retirement, withdrawal, bankruptcy
1. Installment or lump sum
2. Interest rate for installment
3. When will payments begin
4. Restrictive Covenants
a. Admission of new owner
1. Required vote
2. Valuation of buy-in
a. Appraisal
b. Fixed formula
b. Third Party Sales
1. Offer to all shareholders
2. Offer to less than all shareholders
c. Intrafamily sales

II. Dissolution of the Corporation
a. Financial targets
b. Required vote of the current owners
c. Method of dissolution

III. Management Issues
a. Board make-up
b. Voting approval
c. Common decisions.
1. Hiring and firing policies
2. Amending fee schedule
3. Purchase of fixed assets exceeding a certain $ amount
4. Adopting or amending a retirement plan
5. Any expenditure in excess of $ amount
6. Designating/changing signatories to bank accounts
7. Borrowing money
8. Entering into lease, purchase or sale contracts
9. Offering ownership
10. Terminating a shareholder
11. Withdrawals from bank accounts
12. Determining shareholder expenses reimbursed by corporation
13. Dissolution
14. Purchase of insurance
15. Sale of corporate assets

IV. Exit vehicles

V. Employment Issues
a. Voluntary withdrawal by owner
1. Before identified age
2. After identified age
b. Involuntary termination of an owner
1. Death
2. Owner fails to follow reasonable policies or directives
3. Owner commits act of recklessness or gross negligence
4. Owner is convicted of a crime
5. Owner breaches terms of employment agreement
6. Disability of an owner
a. Owner becomes or is disabled longer than x days
b. Continued compensation during disability
1. How long?
2. How much?
c. Permanent v. temporary disability
7. Sale, merger, liquidation events
c. Shareholder fringe benefits
1. Vacation
2. Sick leave
3. Effect on compensation if shareholder chooses to take extra time
4. Expenses
5. Insurance

Again, this list is illustrative and not exhaustive. Your shareholders agreement should be carefully drafted to fit your individual circumstances, and if existing, periodically reviewed to be sure that it continues to satisfy your changing business needs.