Belleville: 618-234-9800 | Edwardsville: 618-656-2244 | ST. LOUIS: 314-421-2325

By: Patrick B. Mathis

The Agreement may include provisions which give either a shareholder or the company the option or obligation to sell/redeem the shares of a shareholder upon termination of employment. Such termination may result from a shareholder employee reaching retirement, resigning from active employment, disability, or discharge (with or without cause).

The options and obligations of the shareholder and the company may be consistent in each of these circumstances, or may vary depending upon a situation. For example, a shareholder who reaches retirement age may continue in an ownership role until his or her death and the company would have no option nor obligation to purchase his or her shares until such time. Alternatively the retiring shareholder may have the option to have the company redeem his or her shares at any time following retirement, or the company may have the right to redeem the shares at any time.

On the other hand, a shareholder who resigns or is discharged may be obligated to sell his or her shares at any time upon a “call” by the company.

Similarly, the agreement may provide for alternate forms of valuation depending upon the circumstances of a shareholder’s departure. For example, if a shareholder is discharged for cause or resigns, a discount may be applied to the valuation of his or her shares. On the other hand, if a shareholder works until retirement no such discounts may be applied.

Correspondingly, the agreement may provide for a lump sum, total payment for the purchase of a retired shareholder’s shares or the shares of a disabled shareholder, but provide for extended terms of payment for a shareholder who resigns or is terminated for cause. This may be particularly so if the company is concerned that a shareholder might resign and then go into competition against the company’s business.

Professional Services Disclaimer: Please note that the information presented here is as an educational service, and while it contains information about legal issues, it is not legal advice. No warranty is made regarding the applicability of the information presented to a particular client situation, and the information set forth is not a substitute for original legal research, analysis and drafting for a particular client situation.