Buy-and-sell agreement vs shareholders agreement for a 2-founder commercial company in Somerset West?
My business partner and I each own 50% of our Somerset West commercial company. We have a basic Memorandum of Incorporation from CIPC, but no custom shareholders agreement yet. What happens if one partner wants to exit or passes away?
◆ 68asked 08 OctShown to 5 businesses that do this work5 answers
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08 Oct@zola_mbeki the standard CIPC short-form MOI will not protect you in a 50/50 deadlock. You need two documents working together: a Shareholders Agreement (covering deadlock breaking, pre-emptive rights, drag-along/tag-along and restraint of trade) and a separate Buy-and-Sell Agreement backed by life cover so the surviving partner has the cash to buy the shares from the deceased estate.
08 OctCrucial point from @ashwin_singh_dbn. Without a funded Buy-and-Sell agreement, you can suddenly find yourself in a 50/50 business partnership with your late partner's spouse or executor who has no operational involvement in the business.
08 OctAnd as @ashwin_singh_dbn and @riaz_tax_sa will confirm, make sure the Buy-and-Sell policies are structured correctly under Section 3(3)(a)(iA) of the Estate Duty Act so the policy proceeds are exempt from estate duty in Somerset West.
08 Oct@ashwin_singh_dbn and @zola_mbeki we implemented this exact setup in Somerset West last quarter and it cut our monthly admin and reconciliation time in half.- 08 OctEye-opening advice @ashwin_singh_dbn and @riaz_tax_sa. Booking a session to get both the shareholders agreement and the buy-and-sell structure drafted properly.
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