The legal transfer of ownership of shares of stock is a relatively painless process. It is affected by way of a stock purchase agreement, which is a written agreement between the owner of shares of stock (seller) and the party who wishes to purchase these shares (buyer).

For a stock purchase agreement to be valid, and for the transaction between buyer and seller to be consummated, the agreement must contain certain pertinent information. For one, it must identify the parties, as well as the corporation whose shares are being transacted. The agreement delineates the number and type of stock to be sold, along with the purchase price per share. The parties will have negotiated this latter point, based on the current fair market price of the stock. Further, the agreement records the time and date of the transaction.

The stock purchase agreement also has a clause in which the seller represents and warrants about the corporation and the seller’s ownership of the shares. The seller attests to the fact that the corporation is legally incorporated and in good standing. He also confirms that he has legal ownership of the shares in question and is empowered to sell these shares.

The buyer will have agreed to the purchase price and thus signs the agreement, as do witnesses, attesting to the transaction. For his part, the seller signs the agreement and endorses over to the buyer the certificates of the shares being sold. He then delivers these certificates in exchange for whatever consideration he receives in the deal. The transaction is thus effected.

Most stock purchase agreements do not constrain the seller to sell only to certain parties, but some do. One is the buy/sell agreement, of which there are three main varieties. These three types of buy/sell agreements are differentiated by who is allowed or obligated to buy the seller’s shares and when. For instance, in a redemption agreement, it is the corporation that is obligated to buy the seller’s stock. The corporation will do so in the event of the seller’s death, disability, or leaving the corporation. In a cross-purchase agreement, it is the remaining or surviving shareholders that purchase the seller’s stock. A hybrid agreement allows both the corporation and the remaining stockholders to purchase the seller’s shares, but the operative element is the timing of the purchase, the corporation has right of first refusal, then the other shareholders, then the corporation must purchase whatever balance of shares remain.

If the parties keep in mind the basic elements of the stock purchase agreement, the transfer of ownership can be achieved fairly easily.

Popularity: 7% [?]

Without the license agreement, the digital age may look very different from the one that exists today. License agreements, like those used by software manufacturers to license and protect their products, allow owners of proprietary material to distribute them for public consumption yet also receive royalties in exchange. Without the protections in license agreements, the publication of original thought would be that much harder.

A license agreement is a written agreement in which one party (the licensee) is granted the revocable right to perform an act by another party (the licensor). Without the licensor’s permission to perform this act, the licensee’s performance would be illegal. From operating a restaurant to driving a motorcycle to using a word processing application, the act in question can be nearly anything. Meanwhile, the licensor’s grant, memorialized in the license agreement is represented in a document called the license, which is usually of a finite duration and may be exclusive or non-exclusive.

License agreements are used often in connection with copyrighted material such as artwork, books, music, and videos’ content, in other words. While this trend shows signs of shifting toward greater liberalization, owners of copyrighted material generally do not want to give up ownership of their material; yet they also want to distribute their work for public consumption. The answer to this dilemma is to license their creations to the public in exchange for royalties - fees that the public pays to listen to the music or use the artwork. Once the license expires, the right to use the material reverts back to the owner.

In the IT world, license agreements are highly prevalent. The software license agreement, also known as the end-user license agreement (EULA), allows software makers to distribute their wares to the public for a fee. A widespread iteration of the EULA is called the shrink-wrap license, named primarily because of the way the license agreement is displayed on the outside of the software’s packaging. By opening the software package, the consumer agrees to abide by the terms of the license.

A similar EULA is called the click-wrap license, which is displayed to the consumer during installation of the software on a computer. Certain types of these EULAs have created legal problems because they are not visible to the consumer in their entirety prior to purchasing the software. In other words, the consumer must purchase the software to see the complete license agreement’a catch-22 if there ever was one.

Whether EULAs are displayed on the software packaging or are found in the installation phase of the software, they generally hold the end-user to certain basic restrictive covenants. They seek to restrict the consumer from making unauthorized copies or modifications to the software; to load it only on one computer; to limit the manufacturer’s liability, and to disclaim warranties.

License agreements require several important provisions. First, the parties must define the scope of the license to be granted. The scope will cover what is to be granted, for how long, to whom, in what capacity, and so forth. Essential rights and restrictions will be laid out, without which the licensor would likely never agree to license the material. Next, in significance, is the provision dealing with consideration - what will the licensor receive in exchange for licensing its work? After these all-important provisions have been determined, the license agreement should discuss points such as remedies in the event of breach, indemnification for the parties, warranties and representations, if any, disclaimers on liability and boilerplate provisions like governing law, severability and survival.

Popularity: 7% [?]

The most common way for a corporation to buy back its outstanding stock from its shareholders is through the stock redemption agreement, which is a type of stock purchase agreement that constrains to whom shareholders may sell their shares. The aim of the redemption agreement is to restrict ownership and control of a corporation to a small group; thus, redemption agreements are more commonly found among smaller, more closely corporations. When a corporation and one of its shareholders (or partners in a partnership) conclude a redemption agreement, the corporation is obligated to buy back all of the shareholder’s shares at a predetermined price. With its own money, the corporation will affect the purchase upon the death or disability of the shareholder, or perhaps on a third, more specific event, which the agreement will identify.

Very often, a corporation will fund the stock purchase by way of a life insurance policy. That is, a corporation will buy a life insurance policy for the shareholder in the amount of the shareholder’s interest in the company. However, the corporation, not the shareholder, will be both owner and beneficiary. The corporation also pays all the annual premiums on the policy. Upon the shareholder’s death, the corporation will receive the proceeds, which it will use to purchase the stock from the shareholder’s estate. This is what is known as an insured stock redemption agreement.

Redemption agreements have a number of advantages. First, they are uncomplicated documents, consisting of only a few basic articles (the purchase, the price, representations and warranties, and a few boilerplate clauses). Second, the insurance policy arrangement is simple, one policy per shareholder. Third, the policies count as assets for the corporation and do not burden the shareholders, because it is the corporation that pays the yearly premiums. And fourth, after the termination of the redemption agreement, the corporation has access to cash from the life insurance policies to fund deferred compensation obligations.

Equally, redemption agreements have certain disadvantages. For one, there is no step-up in basis. That is, the remaining or surviving shareholders’ basis in the company remains the same, even if their individual interests increase. Next, corporate creditors may be able to access and deplete the cash supplies in the insurance policies. Also, the proceeds from the life insurance policies are likely subject to an alternative minimum tax. Lastly, if the corporation is in a higher tax bracket than its shareholders, the yearly premiums could be more costly than they would be otherwise.

As the redemption agreement is not an all-inclusive panacea, other variations of the stock purchase agreement have sprung up. They are the cross-purchase agreement and the hybrid agreement.

In the cross-purchase agreement, it is the other shareholders, not the corporation, that are obliged to purchase the deceased or retiring stockholder’s shares, assuming that is, that they have the desire and the money to do so. In the insured version of this agreement, the stockholders all have cross-owned life insurance policies for all the other stockholders. Moreover, when a shareholder dies, not only is his stock bought, but also his share of the life insurance policies, which for a more widely held corporation can be a nearly unmanageable number. If it sounds complicated, it is.

That is why the hybrid agreement was developed - to combine aspects of both the redemption agreement and the cross-purchase agreement. In a hybrid, the corporation has a right of first refusal to purchase the shares. If it does not, then the other shareholders may purchase them. And if they do not, then the corporation must purchase the shares.

Despite their inherent disadvantages, redemption agreements are still widely used stock purchase agreements. Their simplicity is hard to discount and will likely keep them in circulation for the foreseeable future.

Popularity: 8% [?]