Every corporation having multiple shareholders should have a buy-sell or similar agreement covering what happens upon a shareholder’s exit. Such an agreement not only provides the shareholders and the corporation with a plan of succession but also provides for what happens if the exit is due to termination of a shareholder’s interest. Termination might include, for instance, a termination due to resignation or firing, retirement, or a desire by the majority to “buy out” a minority shareholder, as well as the death of a shareholder. Such an agreement should provide for a buyout plan of payment that will not cripple the remaining shareholders or the corporation. If properly done the agreement will also vitiate any rights the departing partner has to recover damages in a lawsuit under the expansive Massachusetts doctrine of “breach of fiduciary duty.”

 

But what if a corporation does not have such an exit or buyout plan or the corporation underestimates the financial effect of an exit? The article here, which was recently appeared in The New York Times, offers some interesting ways for the corporation or its dominant shareholder to finance the exit or buyout.