We’ve discussed two Buy Sell Agreements, the Entity and the Cross Purchase. Maybe you’re confused or can not decide which one you should use. Don’t worry. It’s often difficult to decide which type is best because there are so many different situations. So wouldn’t it be great to “wait and see” and make that important decision when the specific triggereing event occurs and NOT when the agreement is first written? That is exactly why the Wait and See Business Succession Plan was developed. Let’s review this third plan by first defining it.
As with the first two plans, there is also a written agreement and a value is assigned to the business. HOWEVER, THE ACTUAL BUYER IS NOT IDENTIFIED IN THE AGREEMENT. You will recall that in the Entity Plan, the business is the buyer and in the Cross Purchase Plan the owners are the buyers. The Wait and See Plan takes a different approach. Here the buyer or buyers could be the business, the owners or a combination. This plan “waits” until an actual triggering event occurs to decide who buys the appropriate ownership in the business. As you remember the triggering event could be retirement, disability, death, divorce, or other factors that warrant a buyer. This Wait and See Program does guarantee that your business interest will be sold to at least one of the potential buyers. So in reality, it’s actually a combination of the first two Buy Sell Plans, the Entity and the Cross Purchase.
Let’s offer an example. Assume for the moment you own XYZ Enterprise. Imagine, if you will, you have two co-owners, Bob and Emily. Now if you are the SELLAR, here is a list of the potential buyers.
1. The XYZ Enterprise
2. Bob
3. Emily
4. Bob’s spouse
5. Emily’s spouse
6. Your own spouse
7. An interested third party
8. Your children
9. Bob’s children
10. Emily’s children
11. Or any combination of the above
That’s our initial overview of our third Buy Sell Agreement, the WAIT AND SEE. Next we’ll discuss the advantages and disadvantages of this method. For now keep in mind two important points. First, any decision on the buyer does not happen until an actual triggering event occurs. Additionally, this plan takes a more flexible approach.