Matters to Explore Before Signing A Shareholder Buy-Out Agreement

Issues Arising After a Shareholder-Employee Departure
 If you’re an employee in a company, you may be terminated as an employee where you’re an “at-will” employee or for other reasons when you’re in a contract. However, if you’re an employee and a shareholder of an organization, know that you cannot be terminated as a shareholder. Often in a business cycle, shareholders may reach a point where the shareholders can no longer work together. So what happens to the departing shareholder? Quite a bit. If you’re a shareholder and employee, become familiar with your shareholder agreements or buy-sell agreements in place. These documents may instruct what happens in the event a shareholder departs from the organization.  A departing shareholder-employee situation may become a bigger issue when there is no document addressing this need.
Various topics can become complicated
 This entry explores only a few items that must be explored and can become complicated after shareholder-employees separate.
  1. Employment contract – in addition to shareholder agreements and corporate documents in order, review your employment agreement to determine what your future holds with respect to benefits and/or restrictions.
  2. Unfair Competition and Trade Secrets – Unfair competition arises when a former business relationship uses deceit or insider information to gain a business advantage.
  3. Noncompete Clause – A noncompete clause may prohibit an employee from working in the same field or from working for a competitor. Various California regulations may deem these types of clauses as unenforceable.

If you find yourself in the position where you can no longer work with other shareholders in your organization, reach out to an attorney for a consultation as early as possible. Before signing a shareholder buy-out or shareholder withdrawal agreement or similar document, learn about your options that are particular to your circumstances. Published online recommendations are general in nature, therefore, know that your situation and the factors surrounding your situation.

Before signing a Shareholder Buy-Out Agreement

It is important to meet with an attorney to explore your matters. The difference between meeting with an attorney and not could mean hundreds of thousand of dollars in liabilities in the future.