A Partial Liquidating Trust Agreement can be defined as an agreement that is created when the board of directors of a certain company or organisation, discuss and mutually agree on a financial restructuring. This agreement acts as a bond of trust between the Board of Directors that a restructuring will take place and that everyone has mutually agreed to the same. In order for the restructuring to take place smoothly and efficiently, certain shares or assets of the organisation and or company needs to be sold to another organisation as a means of the financial restructuring to take place.
The Partial Liquidating Trust Agreement is created so that it can serve as a legal documented proof of the transaction taking place and for it to act as a bond of trust between both the organisations.
When do you need Partial Liquidating Trust Agreement?
A Partial Liquidating Trust Agreement is needed when the Board of Members of an organisation and or company decides that a partial recruiting needs to take place and therefore a sale of shares is organised between both the organisations. After the initial meeting where the terms and conditions of the sale are mutually decided, this agreement is created as a bond of trust between both the organisations and will act as legal proof if there is such a need in the future.
This legal document mentions the amount of funds that will be collected from the organisation purchasing shares or stakes in the parent organisation and how they will be distributed to the creditors on a pro-rata basis.
Inclusions in Partial Liquidating Trust Agreement
The following are the main inclusions in the Partial Liquidating Trust Agreement
Parties Involved: In this section of the agreement, the credentials of both the organisations who are participating in the transaction is mentioned. The company who is selling a part of its shares or stakes is known as The Company and the organisation who is purchasing these shares in exchange for a pre decided payment is known as the Trustee. The credentials of both these organisations are mentioned along with all the terms and conditions that have been mutually agreed upon.
Effective Date: This section of the contract contains the details of the important dates in the transaction. The date on which the sale will start, the total duration of the sale, and the date on which the transaction will need are clearly mentioned in this section of the contract.
Where does it Apply: This contract is legally applicable within the geographical boundaries of the city or state it was drawn at. In the context of international organisations, this agreement is applicable under international laws as well.
How to draft a Partial Liquidating Trust Agreement
Drafting a Partial Liquidating Trust Agreement can be a complicated process if you are not aware of the ins and outs of legal contracts. In order to make the process simpler, follow the steps mentioned below.
Organise a meeting between both the stakeholders, The Company who is selling the shares and the Trust who is buying them. Discuss upon the terms and conditions of the sale, how many shares will be sold and how much funds will be collected and arrive upon a mutual decision.
Once the meeting has concluded, reach out either to your internal legal team or to an external one and request them to draft a Partial Liquidating Trust Agreement for both the organisations.
Cross check and verify all the details and get the authorised signature from the organisations to make the contract legally valid.
File the contract in the local or district court as advised by your legal team.
Benefits of Partial Liquidating Trust Agreement
The benefits of having a Partial Liquidating Trust Agreement are many and a few significant ones are as outlined below.
Advantages of having a Partial Liquidating Trust Agreement
This contract serves as a legal proof of a transaction taking place between 2 organisations and thus can be presented at court if there be a need.
This legal document acts as a bond of trust between both the organisations and thus protects them from fraud and another miscommunication.
The contract clearly mentions the quantity of shares and stocks that will be sold and how much funds will be collected along with other important details, thus making sure that both the stakeholders are well aware of the finer details of the transaction.
Cons of not having a Partial Liquidating Trust Agreement
In the absence of a Partial Liquidating Trust Agreement there is no legal proof as such of a transaction ever happening between the two organizations and thus if the matter ever needs to be taken to court, either of the companies will face a loss.
Key Terms & Clauses of Partial Liquidating Trust Agreement
Disclaimer: Under this section of the contract the important disclaimers which hold applicable for both the organisations are mentioned. These disclaimers are mutually decided by both the organisations before the creation of this contract and both parties need to be abide to them during the entire tenuity of the contract.
Obligations: This section of the contract mentions the obligations that both the organisations have to fulfil to one another on, before and after the transaction has taken place. This might include terms of the payment and how each one should be made, among other details.
Remedies: In the case of a foreclosure of this contract, this section outlines the remedies that either of the stakeholders have to oblige and fulfil.
Notices: The details of the notices that need to be served by both the organisations are mentioned in this section of the contract.
Sample Partial Liquidating Trust Agreement
You can download a sample Partial Liquidating Trust Agreement here.
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