Sale of shares with extended payment period
Discussion
A "friend of mine" :hehe: has an amount of stock in a company that they wish to sell and the company wants to buy from them. Let's say for simplicity that they have 10 shares.
They have agreed a sale price for the shares. Let's say that is £10,000. The company is not in a position to pay the full £10,000 in one lump sum and wishes to pay over a period of 10 months at a rate of £1,000 per month.
The share redemption agreement that is on the table states that the company gets 100% of the shares upon signing of the agreement but pays for them over the 10 month period. So rather than buying 10% of the shares with the first payment, the next 10% with the next payment and so on, the company gets all the shares up front and my friend then, as I see it, becomes a creditor of the company.
Taking interest out of the equation, what are your thoughts on this deal? Is this normal practice? Complicating matters slightly is that this is a deal with a US company, and feedback from a US attorney is that the deal is quite standard. It strikes me that if the company decides not to bother paying the 9 remaining installments, they have all the shares and my friend would have to pursue them for a bad debt.
Any thoughts or opinions greatly appreciated! :beer:
They have agreed a sale price for the shares. Let's say that is £10,000. The company is not in a position to pay the full £10,000 in one lump sum and wishes to pay over a period of 10 months at a rate of £1,000 per month.
The share redemption agreement that is on the table states that the company gets 100% of the shares upon signing of the agreement but pays for them over the 10 month period. So rather than buying 10% of the shares with the first payment, the next 10% with the next payment and so on, the company gets all the shares up front and my friend then, as I see it, becomes a creditor of the company.
Taking interest out of the equation, what are your thoughts on this deal? Is this normal practice? Complicating matters slightly is that this is a deal with a US company, and feedback from a US attorney is that the deal is quite standard. It strikes me that if the company decides not to bother paying the 9 remaining installments, they have all the shares and my friend would have to pursue them for a bad debt.
Any thoughts or opinions greatly appreciated! :beer:
Incorrigible said:
Get the company to get a loan, if they can't raise $50k dollars they can't be much of a company
Indeed they aren't which is why I, ahem, I mean, my friend, has left. A $50k loan shouldn't be a problem on its own. On top of the $100k loan and the $450k loan and the $90k loan they already have, however...
Doesn't sound ideal. Does the agreement include any forfeiture of the shares for non-payment? That would be the minimum I would look for. Better still, I'd agree to transfer ownership only on receipt of cleared funds (standard in large-scale equity offerings), so having ten different payment/transfer dates in the contract.
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