Having a well drafted Buy-Sell Agreement is as important as having the right tool for the job. A recent Nebraska Supreme Court opinion serves as a reminder of this fact or you could spend thousands of dollars and years litigating about rights and interests in the company.
This case involved three individuals who owned a construction company in Kearney, Nebraska. The majority shareholder passed away in 2015 and the deceased’s widow stepped in as president of the company. The two minority shareholders continued to run the company until they were terminated by the new president in 2016.
Later that year, the two minority shareholders sued the company and the president, asking the court to require that the president sell her deceased husband’s shares in the company and reinstate their employment. In 2018, the trial court ruled in favor of the two minority shareholders. The president appealed and in 2020, the Nebraska Supreme court reversed and sent the case back to the trial court. So, after four years of litigation, the case is still not done.
The big issue in this case is whether the two minority shareholders could force the president to sell her husband’s shares and how would those shares be valued.
The Supreme Court found it was not possible to determine the meaning of the buy-sell agreement as applied to the death of a shareholder and that the case must go to trial.
So, here a construction company had a buy-sell agreement, but it was not well drafted. Specifically, the buy-sell agreement did not make clear what would happen if one of the shareholders died.
Perhaps you should take a look at your buy-sell agreement and ask yourself a few questions:
- What would happen if one of our shareholders died?
- What would happen if one of our shareholders went through a divorce?
- What would happen if one of your shareholders retired?
- How would a buy-out be funded?
These are all important questions to consider when reviewing your buy-sell agreement. If you need help answering these questions, we recommend you contact experienced attorneys to help with your analysis.