Breach of Partnership/Shareholder Agreements
Basically, a partnership/shareholder agreement is a contract between the shareholders and the corporation which addresses the main issue of stock ownership and all issues related to it such as buying, transferring, or selling stocks. Although certain restrictions on stocks may be placed in the articles of incorporation or bylaws, a separate agreement executed by both parties may be more effective and enforceable.
Any potential issue may come up involving stocks and without an agreement, a corporation may find it difficult to resolve. In most cases, the withdrawal of stocks from the corporation may be due to the following reasons:
- death
- bankruptcy
- retirement
- termination of employment
- disability
- wanting to sell because of financial trouble
- expulsion from business
- voluntary or involuntary dissolution of the corporation
Having a partnership/shareholder agreement can provide a corporation with guidelines on what to do when certain situations arise. Typically, a partnership or shareholder agreement must contain these key provisions:
- Obligations of transferees
- Value (price and terms of sale)
- Restrictions on transfer of shares
- Permitted transfers
- Optional re-purchase of stocks by company or other shareholders
- Possible purchase in case of death, total disability, or termination of employment
- Dissolution of corporation
- Termination of agreement
In the event of a breach of partnership/ shareholder agreement, the parties may also provide remedies with respect to the rights arising out of contract and as provided by the agreement. These rights include the following:
- Right to recovery of liquidated damages
- Reimbursement for damages resulting from the breach of the agreement
- Indemnification in a fixed amount as determined by the agreement
- Other remedies available in case of a breach of the agreement