Bluemount Bulldogs
Nova Scotia, Canada

Unfunded Buy Sell Agreement

Below is a thinking checklist that should be considered by business owners, which should be put in place in a formal buy-sell agreement: in a trusted buy-sell agreement, business owners enter into a contractual agreement that limits ownership of their business interests. The agreement usually defines what should happen in the event of triggering events such as death, disability, termination of employment (voluntarily or involuntarily), bankruptcy of an owner, divorce of an owner, etc. Reliable purchase and sale agreements are usually entered into as “cross purchase” agreements and require owners to acquire an owner`s business interests when a triggering event occurs. For example, the agreement would require owners to purchase shares from a deceased shareholder. Owners create a trust that owns and is the beneficiary of life insurance policies covering the life of the owners (one per owner). The agent is responsible for enforcing the terms of the trust in the event of death. 9. The agreement must be coordinated with other documents and agreements, such as shareholder agreements and articles of association. A purchase-sale contract, a legal document obliging an outgoing owner to sell and the remaining owner and/or owner to purchase the outgoing owner`s shares should be financed by a method that facilitates the smooth transfer of a business interest in (at least) the following four contingencies: (1) when an owner withdraws at a time prior to retirement; (2) at normal retirement age, (3) in the event of long-term disability of an owner and (4) in the event of the death of an owner. 4. Conditions of each sale. Should the agreement provide for a lump sum payment in the event of certain triggering events or should it allow for a sale spread over a period of years? The other big uncovered liability found in most buy-sell agreements is how to buy back retired homeowners who don`t die or aren`t hindered during their working years.

Isn`t a normal pension buyback the most likely scenario? If a purchase-sale contract is not updated regularly, the terms may not correspond to the current situation or future goals of the owner. Entrepreneurs need to plan for the succession of their business. There are several events beyond the control of the business owner that can themselves derail the best-thought-out succession plan. Fortunately, there are opportunities for a business owner to avoid the negative effects of many of these events by implementing an emergency plan containing an agreement often referred to as a “buy-sell.” There are buy-sell agreements that are suitable for a large number of types of organizations and management situations. The agreements require the coordination of company documents and financing. If the ownership of the company changes, new guidelines are needed. Agreements may require regular review and adaptation. Valuation The main provision for a buy-sell is the valuation of the company. The value must satisfy the owners and not circumvent the assessment for IRS purposes. If not, plan for the payment of attorneys` fees. There are several reasons why a good buy-sell agreement is important to you: A written but unfunded buy-sell agreement is legally binding, but in reality nothing more than a promise that payment will be made, but does not offer the mechanism of how payment is delivered…