What is an S Corp Shareholder Agreement and How it Benefits a Business

An S Corp Shareholder Agreement or Buy-Sell Agreement is a suggested for anyone who has ownership in an S Corp business. S Corporations are businesses who elect not to pay federal income taxes because the business’s profits or losses for the year will be divided and paid to the corporation’s shareholders. It is then the shareholder’s responsibility to claim the income or loss when filing his/her income tax return.

An S Corp Shareholder Agreement is a legal contract made between the company’s shareholders that specifically explain what should occur if particular circumstances were to take place. This type of agreement is especially useful when there are a few shareholders, and these shareholders are actively participating in the company’s business functions.

The circumstances often highlighted in the agreement are bankruptcy, disability, or death. Some agreements are more detailed and will include other situations. Some of the supplementary situations are who may sell his/her share, when they may sell it, to whom they can sell it to, and for how much they can sell it for.

The S Corp Agreement has many advantages for the owners of the company. For instance, if one of the agreement’s circumstances were to take place, the company would still be operating with the other shareholders. The company has experienced very little change and allowed the remaining shareholders to continue their duties. By clearly defining who can buy a share, the company has greatly reduced the opportunity for someone with negative intentions to gain a share of the company for the purpose of wrongdoing.

The agreement can also define that retired owners or owners who have not participated in the business dealings over some time must relinquish their shares. This will avoid the possibility of shareholders who have not been active in the business’s dealings from suddenly having a say in what occurs. The open shares can then be sold to eligible candidates.

The agreement is a safeguard for a company’s business owners that will clearly describe what will happen when a particular event should happen. This agreement alleviates any confusion or chaos that may occur when significant event happens. The agreement is filed by a Los Angeles corporate attorney.

Protect the business, protect the shares, and provide peace of mind for business owners within the company by contacting a Los Angeles transactional business attorney to create an S Corp Agreement.