BUY/SELL AGREEMENTS AND WHY YOU MIGHT NEED ONE.
In the event something happened to you, what would become of your share of ownership in your closely held corporation or limited liability company? What if you become incapacitated, wish to exit the business, or become incapacitated? A well drafted buy/sell agreement can ensure that your surviving spouse or partner, or children’s inheritance is protected as well as allowing the business to continue, without court involvement.
Your main consideration when entering into a buy/sell agreement is likely to provide for surviving loved ones, seeing that they are compensated for your interest in the business you’ve worked so hard to build. However, there are potential tax consequences when dealing with buy/sell agreements. At Schmidt Kirby and Sullivan, P.C. we understand the tax code and always work with your CPA or whomever prepares your taxes, and financial advisors, to make certain that your succession plan does not create a tax disadvantage. A change of ownership resulting from a buy/sell agreement may necessitate changes to the businesses operating agreement, additionally. It is essential for management and any other individuals owning interest in a business to discuss business succession with an experienced attorney.
Buy/sell agreements can take different forms depending on the situation. If the remaining owners of a business desire to purchase back the deceased partners shares, then a cross-purchase agreement should be utilized. In the event the business desires that the company be mandated to buy back the deceased person’s interest upon his or her death, then a redemption agreement is appropriate. Details are important when contemplating business succession and buy/sell agreements can be drafted to address your company’s uniqueness. Other times, a hybrid of a cross-purchase agreement or redemption agreement is best, which allows the company to repurchase the business interest at the time of death or upon other various triggering events (e.g. disability, dissolution of the company, etc.).
Estate planning should be attacked with a holistic approach, and business succession is an intricate part of your overall plan. Contact our firm to set up a consultation with an attorney to discuss business succession and whether you and your business have a need for a buy/sell agreement to ensure your surviving loved ones are properly provided for regarding your business interest.
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