Page 34 - GS190702

Education

Stockholders agreement provisions

When an ISO has multiple owners, a stockholders' or
shareholders' agreement should be in place that will
provide for buyouts or other share allocation provisions in
the event that one of owners is incapacitated or has passed
away.
Legal ease:
In cases where the shares of an owner are to be
transferred from the deceased owner to another owner,
the stockholders' agreement will usually provide for
assignment of an objective value to the shares – such as a
percentage of the overall value of the company – that is set
out in a formula.
ISO succession ISOs are often evaluated as a function of the residuals

received each month. An ISO owners' preferred method
planning of valuation should be reflected in the stockholders'
agreement provisions pertaining to the transfer of shares

By Adam Atlas from one owner to another in the event of incapacity or
death.
Attorney at Law ISO agreement provisions
ike all business owners, ISO owners need to plan Agent agreements with individual agents (not companies)
for when they will no longer be able to run their should provide for the counter party to the agent to
businesses. The legal jargon for this is "succes- continue to honor the terms of the agent agreement if the
L sion planning," and it obviously involves more agent passes away and bequeaths assets to another person.
than just an individual's ISO business. The subject is a Again, the chosen heir should be capable of operating the
bit morbid, but it comprises a necessary part of a sound business. An inexperienced heir who inherits an agent
business and legal strategy. In this article, I will highlight agreement could easily undo all the work the decedent
key considerations that are relevant to all ISOs – large and performed to build the merchant portfolio by, for example,
small. failing to service accounts or soliciting accounts in
Get a will violation of the terms of the agent agreement.

ISO owners should hire local counsel in the state where When the ISO is a company (not an individual), the fact
they reside to draft a will that will cover all aspects of their of one shareholder being incapacitated does not, of itself,
property – including their shares in an ISO agreement. The change the status of the ISO (as a corporate entity) that is a
purpose of a will is, of course, to make sure the property party to the ISO agreement. As a matter of law, a company
of the ISO owner goes to the intended recipient should the is a separate legal person from the individual shareholders
ISO owner pass away. One asset of an ISO owner is the who own the company. Technically, if a stockholder is no
ISO company shares. If the business has multiple owners, longer around, the company of which the individual is
make sure your will works in conjunction with the ISO a stockholder remains in existence and remains bound
company's stockholders' agreement. by the contracts to which it is a party – including an ISO
agreement.
Get a power of attorney
The ISO agreement, therefore, is not directly impacted
The drafting of a will is often accompanied by a power by the absence of one stockholder of the ISO. However,
of attorney in case the will-maker becomes incapacitated. ISOs are registered with payment networks (that is,
There are a number of unfortunate outcomes that occur Visa, Mastercard etc.) to solicit merchant services. Those
when an ISO owner is still alive but, for one reason or registrations are dependent on the financial profile and
another, cannot do what is normally required to run the creditworthiness of individuals who are owners of ISOs.
business. In those instances, a power of attorney can be Consequently, the fact of an ISO's stockholder status
used to delegate to a trusted person some or all of the changing from one person to another could change the
rights and privileges of operating the ISO business. underwriting profile of the ISO, which could lead the
ISO's sponsoring bank to be less willing to maintain the
The person chosen to assume the rights of an ISO owner ISO's registration.
should have enough knowledge of the ISO business to not
only run it honestly, but also with the goal of ensuring that ISO stockholder heirs should be selected in advance,
the business operates normally and with the amount of therefore, to be not only capable of running the ISO
growth that would be typically expected.
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