Selling Corporate Shares Be Careful
Below is a MRR and PLR article in category Business -> subcategory Other.
Selling Corporate Shares: Proceed with Caution
Introduction
Owning a corporation is often seen as advantageous due to the ease of transferring shares. However, this benefit is not always as straightforward as it seems.
The Reality of Share Transfer
A key advantage cited by experts for using a corporate structure is the ability to transfer shares freely, without affecting the business operations. For instance, unlike a general partnership where selling a majority stake could automatically dissolve the entity, a corporation allows share transfers without such restrictions.
However, this perceived freedom can be misleading, especially when the corporation is bound by contracts with other companies.
Risk of Contract Termination
While state laws govern business entities, they do not override general contract law. Contracts often include clauses that prevent the free transferability of shares, especially in significant agreements. Such clauses ensure that all parties know who they are dealing with, maintaining the agreed expertise and trust.
For example, if a corporation renowned for its skilled engineers enters a contract, the other party might insist on a clause that voids the contract if the engineers sell their shares. This protects their interests.
Avoiding Costly Mistakes
Many small business shareholders overlook these share restriction clauses in contracts. They may sell their shares envisioning a retirement in paradise, only to face lawsuits from buyers when contracts are terminated due to these restrictions. As the saying goes, "No white beaches FOR YOU!"
Conclusion
Before selling corporate shares, carefully review all existing contracts. Ensuring compliance with any restrictions can prevent unexpected legal and financial repercussions, saving you from having to cut short that dream vacation.
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