Legal Blog

M & A Nuggets: Giving The Owner Stock In The Purchaser

shutterstock_534909760Sometimes, the purchaser in an asset acquisition issues shares of stock in the purchaser to the seller’s owner.  This may or may not be a good idea.  The issuance of stock can be a good idea, especially when there is an owner not near retirement who you expect to add value to your company for many years.  It aligns the owner’s interests with your interests and can be a terrific incentive for the owner to help to continue to grow the company.  On the other hand, it is usually not a good idea to issue stock to an owner near retirement who you anticipate will provide services only during a transition period. You would have a stockholder whose tenure is short term and whose personal interests are not necessarily aligned with the company’s interests.  If you do intend to issue stock to an owner under either of these two scenarios, you should make sure that a stockholders agreement is executed at the closing of the business purchase.  The stockholders agreement should, at a minimum, specify the triggering events that would result in the owner’s stock being purchased, whether the purchase is optional or required and the terms of the purchase.  Otherwise, you may have no way to jettison a disinterested stockholder from the company.


Glenn D. Solomon Esq., is a principal at the law firm of Offit Kurman and has provided counsel to businesses and business owners for more than twenty-five years, with extensive experience in the purchase and sale of businessesstructuring ownership agreements, and advising companies in financial distress.







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