A buy-sell
agreement is a legally binding document that stipulates what
will happen to a business when a business owner or partner
becomes disabled, dies, retires or decides to sell his or
her interest in the company. Buy-sell planning is an extremely
important part of long term business continuation planning.
The common types of buy-sell plans include the stock redemption
agreement or entity plan, the cross purchase buy-sell agreement
and the wait-and-see buy-sell agreement.
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Stock Redemption
Plan or Entity Plan: An
agreement between the company (Entity) and the business
owners or partners whereby the owners agree to sell their
ownership interest back to the company if they become
disabled or wish to retire. If there is a death of an
owner, the owner’s estate is required to sell the
deceased owner’s interest back to the company.
For additional information, see What is a Stock Redemption
Plan? |
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Cross-Purchase Agreement: A written agreement among
the company partners or stockholders to purchase each
other’s shares at the disability, retirement or
death of a business owner. For more details, see What
is a Cross-Purchase Buy-Sell Agreement? |
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Wait-and-See Buy-Sell Agreement: An agreement allowing
the business owners to delay the selection of an entity
plan or a cross-purchase buy-sell agreement until an
actual death, disability, retirement or sale of a business
interest. For specific details, What is a Wait-and-See
Buy Sell-Agreement? |
Which Type of Buy-Sell Plan is Best for My Company?
The questions below will help you identify the type of buy-sell
agreement that may best fit your business.
1.
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How many business owners does the company have? |
2.
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How old are the individuals that own the business? |
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Is each of the owners insurable? |
4.
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What are the ownership interests of each owner? |
5.
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What is the value of the business? |
6.
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Is this a family owned company? |
7.
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What is the potential tax impact for each option? |
| 8. |
What are the estate planning implications for each
option? |
The answers to each of these questions will provide insight
into which plan will suit your business. Consulting with
your business attorney and CPA or tax advisor is the only
way to assure you address all potential concerns and choose
the proper plan structure¹.
Additional Buy-Sell Agreement Information:
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