Chapter 11 - Buy-Sell Agreements

provisions that must be in a buy-sell agreement

- parties involved - purpose - commitments - business interest description - transfer restrictions during lifetime - purchase price - funding

types of corporate buy-sell agreeements

1) entity (stock-redemption) purchase agreement 2) corporate cross-purchase agreement

types of partnership buy-sell agreements

1) entity-purchase agreement 2) cross-purchase agreement

ways to value buy-sell agreement

1) fixed price 2) apply formula 3) appraisal 4) combination of appraisal and formula

Buy-Sell Agreement

A legal contract that determines what will be done with a business in the event that an owner dies or becomes disabled - avoids probate - creates a mechanism for valuing business interest

cross purchase agreement (insurance formula)

N * (N-1) = total # of life insurance contracts needed N = # of partners

entity purchase (liquidation) agreement

a business buy-sell agreement for partnerships and corporations in which the business purchases the decedent's interest

cross-purchase agreement

a business buy-sell agreement for partnerships and corporations in which the surviving co-owners will be the purchasers of the business interest of a deceased owner

stock-redemption agreement

corporation purchases decedent's stock at death

business continuation agreement

used when the primary purpose is to maintain the business after the decedent's death