Several types of valuation clauses can be written, including replacement fees, current value, specified amount and agreed value. What is your business worth? What would you pay to buy the other shareholders? What do you want to get for your actions? Are these values the same? Would your other shareholders agree with your values? If you have a shareholder pact or are considering, the issue of value needs to be addressed. Sometimes it is necessary to change the definition of the value used to take into account particular circumstances. For example, should the value of the buyback include the value of the company`s life insurance? What about a discount for minority shareholders or a premium for the control or effects of the loss of a key person? If you do not wish to take these points into account, this fact must be explicitly stated in the agreement. Finally, in some cases, when an outgoing shareholder sells its shares to other shareholders of the company, the shares of the company are then sold “in bulk” to a third-party purchaser, in a significant increase (on the basis of the shares). Therefore, shareholders involved in the subsequent sale of En Bloc may benefit significantly, in part at the expense of the shareholder who has sold its shares in the company to other existing shareholders. In order to mitigate the perceived unfairness of this situation, shareholder agreements sometimes provide that, for a period of time after the sale of its shares by an outgoing shareholder, that shareholder is entitled to participate in a possible result of the bulk sale of the shares (or net assets) of the company to a third party. Such provisions may prevent shareholders within a company from actively consolidating the interests of other shareholders in order to supply the company as a whole to a third party acquirer and thus make a profit. At the same time, a shareholders` pact should allow minority shareholders to sell at the same price and on the same terms as those accepted by the majority. These so-called “Coattail” or “Tagalong” provisions protect the liquidity of all shareholders in the event of such an offer. For each triggering event, the shareholder contract should set the terms of payment for the acquired shares. The definition of fair value provides for a cash equivalent transaction.
When a payment is made over time and market interest is not paid for the outstanding balance, these factors should normally be taken into account when determining value. The “pump gun” agreement invites the person who triggers the buyback to determine the value. The other shareholder can then choose to buy or sell the shares at that price. This agreement is often used to resolve serious shareholder disputes. However, this type of buyback can be unfair, as a wealthy shareholder can set a low price, knowing that other shareholders cannot afford to pay even that price. In most shareholder agreements, there are several events that would trigger the purchase of your shares. These events would often involve a purchase in the event of death, permanent disability, bankruptcy, if your shares were to be transferred as a result of adultery, in case of serious disagreement between the shareholders and possibly in retirement. For a buyout to take place, the focus must be on actions.