Shareholders Agreements - Life Insurance to Cover Buy-Outs
Often the Shareholders/owners of a small Corporation purchase life insurance to make provisions for purchase of a deceased shareholders interests. Shareholders often desire to set forth their respective rights concerning Corporation's stock with regard to death, disability, retirement and other future disposition of the stock by any Shareholder by imposing certain restrictions and obligations on themselves, on Corporation and on their shares of stock of Corporation. Your shareholders agreement can include language to provide for transfers of stock upon death. The following type of provisions can sometimes be included in a shareholder's agreement:
The parties hereto agree that there may be kept in force policies insuring the life of each Shareholder in such amounts as shall be determined from time to time by the Board of Directors, and that Corporation or the other Shareholders shall assume and pay all premiums for such policies. Corporation or the other Shareholders shall be the owner of, and the beneficiary under each policy, but shall receive the proceeds as a trustee for the benefit of the deceased Shareholder for the purpose of purchasing the shares of stock of the deceased Shareholder pursuant hereto.
Upon the sale by any Shareholder of his shares of stock in Corporation during such Shareholder's lifetime, he shall have the option, exercisable within a period of thirty (30) days subsequent to the sale of his shares of stock, to purchase from Corporation or the other Shareholders the policy insuring his life in exchange for the payment in cash of an amount equal to the cash surrender value, if any, less any loans attributable thereto, of such policy as of the date of such sale. The terms of each insurance policy shall require that each Shareholder receive from the insurance company a copy of all premium and termination notices relating to the policy insuring his life not later than ten (10) days prior to the date to which the notice relates.
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