Iron-ore developer Ferrum Crescent Limited said Oman-based Anvwar Asian Investment has finished due diligence on its planned investment in Ferrum Crescent, and shareholders agreements
are now in progress.
There are a number of provisions commonly found in shareholders agreements that, when activated, affect the value of the company's shares.
Shareholders agreements typically contain provisions that either permit or require the sale of individual shareholdings in various circumstances.
Shareholders agreements sometimes specify how fair market value (or some other definition of value) is to be determined.
In addition to the triggering events discussed above, shareholders agreements often provide one or more shareholders with the right, or the obligation, to put (sell) their shares to the other shareholder(s), or to call (buy) the interest of the other shareholder(s).
Shareholders agreements often include right of first refusal provisions.
Throughout this discussion, the subject of children has arisen (see discussion of shareholders agreements and the parent as the sole shareholder).
As a general rule, where there is more than one shareholder in an S corporation, it is critical for both income and estate tax reasons to have a shareholders agreement to govern the disposition of the stock.
If the shareholders agreement had provided that the S corporation is required to make a minimum distribution of funds each year so the shareholders will have enough money to pay their income tax, then B would not be in the quandary he is.
The income tax reason for a shareholders agreement is not to cause the S election to be lost because a second class of stock is created (discussed below) or that a shareholder will be in a position to terminate the S election.
In a shareholders agreement, care must be exercised to prevent creating a second class of stock under 1361.