Stock Purchase and Operating Agreements

Businesses can be structured in different forms under New Jersey law. The choice of business structure will influence the documents that need to be drafted. Stock purchase agreements are the agreements that parties sign if company shares are being sold or bought. While New Jersey law does not require an operating agreement to be drafted for an LLC, it is generally a good idea to have an experienced New Jersey business lawyer draft an operating agreement. It can have a significant impact on a business’ long-term success and can minimize the risk of litigation down the road. Attorney Raymond A. Grimes at the Grimes Law Firm can draft these agreements for you in accordance with the objectives of your business.

Sometimes the sale of a business involves a sale of assets or a merger, while in other cases, it involves a stock purchase. Stock purchase agreements may be used by a small corporation that sells stock so that the company or its shareholders are able to sell stock to a buyer. The purpose of the stock purchase agreement is to protect the buyer and the seller. It should be in writing to comply with the law. Documentation is also needed for tax preparation.

Stock purchase agreements are written agreements between shareholders and corporations that are drafted in order to sell or transfer stock. A stock owner might be a corporation, or it might be a corporation’s shareholders. The agreement should set forth the chain of ownership of stock, the purchase price for the stock, and the number of stock shares purchased by the buyer, as well as the class of stock to be bought. There should be provisions for a right of refusal and the redemption of shares. There may be miscellaneous provisions setting forth other agreement terms.

Operating agreements for limited liability companies (LLCs) are documents written by company founders that specify and define the LLC’s operations. When an LLC is already set up, the operating agreement allows for changes to its operations or presents a formal way of outlining how it operates. It is not easy to predict the direction of a business or every type of dispute that could arise, but getting founders on the same page through an operating agreement can help avoid disputes between members or settle them. Members are the owners of the LLC. Disputes can turn into litigation, which can become expensive over time.

If a business does not create an operating agreement, the business will be subject to New Jersey law. The Revised LLC Act of New Jersey has rules for businesses that do not have their own operating agreements. Under this law, all members have equal rights, irrespective of capital contributions. When members disagree, the dispute is settled through a majority vote. The members receive equal profit distributions. If a member resigns, he or she loses voting rights but retains distributions. Each member has fiduciary duties to the LLC and to each other. Member indemnification is mandatory under New Jersey law. However, if you have a written operating agreement, its provisions can override the state law.

The founders should discuss how interest will be divided among the members. Equity in an LLC is made up of membership, rather than stock shares. Also, LLC operating agreements do not need to mandate that losses and profits will be divided based on ownership. The written agreement can specify a different management structure and profit distribution, and it can outline how disputes will be resolved. It can alter the rules set forth under New Jersey law related to fiduciary duties. It also can change what happens when an LLC member resigns.

If you want to draft a stock purchase agreement or an operating agreement, you should retain an experienced attorney. At the Grimes Law Firm, we guide clients through these matters in Somerville, Neshanic Station, Somerset County, and other areas of New Jersey and the tri-state region. Call us at (908) 371-1066 or contact us via our online form.