Buy-and-sell agreement vs shareholders agreement for a 2-founder labour law company in Somerset West?
My business partner and I each own 50% of our Somerset West labour law 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?
◆ 80asked 11 SeptShown to 5 businesses that do this work5 answers
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11 Sept@vikram_moodley 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.
11 SeptCrucial point from @ryan_culverwell. 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.
11 SeptAnd as @ryan_culverwell and @alistair_reid_dbn 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.
11 Sept@ryan_culverwell and @vikram_moodley we implemented this exact setup in Somerset West last quarter and it cut our monthly admin and reconciliation time in half.- 11 SeptEye-opening advice @ryan_culverwell and @alistair_reid_dbn. Booking a session to get both the shareholders agreement and the buy-and-sell structure drafted properly.
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