Promissory Note Agreement

Mississauga Insurance Solution Provider for Small Businesses

When it comes to funding partnership/shareholders’ agreements this is probably the method least used because of the inherent disadvantages. It can be used whenever the investment or stake in the business is minimal but at least its better than just a handshake.
Like the name says, it is a ‘promise to pay’ in the event of a particular event such as death, disability, critical illness or the person decides to leave the business. If such event should occur, it provides the remaining partners/shareholders to ‘buy-out’ the shares of the other person. i.e. Should a partner die the remaining partners/shareholders will promise to pay the family or the estate of the deceased within a certain time frame. Some of the concerns should be addressed when choosing this type of Agreement.

  • Can the family or estate of the deceased wait until the remaining partner/shareholders honor the pledge to pay? It could be a sudden event and the family of the deceased is immediately without income.
  • What if the business is dissolved or the remaining shareholders leave and not honour the agreement.
  • What if the deceased was the main reason why the company was profitable and now that the person has passed, it is quite probable that the business profitability may drastically decrease.
  • A power struggle occurs amongst the remaining partner/shareholders leading to the demise of the business.

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