What will happen to your business if you die, retire, or become disabled? If you are a small business owner, you need a means for the transfer of that business in the event something happens to you. With a “buy-sell” agreement, you are able to plan for many contingencies over which you would otherwise have little control. A buy-sell agreement should establish a price and method of succession.
The traditional buy-sell agreement is a contract between the business entity and all the entity’s co-owners. The agreement typically covers valuing the business, laying down triggering events that would bring the terms of the contract into effect, and defining the transfer of ownership. There are many advantages in drafting a buy-sell agreement, including the following:
* Provides a framework for dealing with owner disputes – ensures a smooth transition of control and power to the owner’s successor.
* Facilitates estate planning objectives – can help minimize certain estate taxes and can be structured to take advantage of favorable redemption rules upon death.
* Fixes value for estate tax purposes – includes a method for valuing ownership interests and establishing a fixed value for purposes of taxing the estate upon the business owner’s death.
* Forces owners to deal with liquidity issues – addresses how a possible buyout would be funded.
* Helps prevent loss of tax benefits – especially for S corporations in which transferred stock could lead to termination of the S election. A buy-sell agreement can prohibit the transfer of shares without the consent of owners.
The ownership and management of your business should not be left to chance. Your buy-sell agreement must satisfy all parties involved, including the IRS. We’ll be happy to work with your legal team to discuss the drafting or updating of your agreement. Please give us a call.
Tags: buy sell agreeemnts
Written by: Doug Rodrigues