While we just finished the sixth and last of the different Buy-Sell agreements, a brief summary should be in order to tie things up before we progress. First of all let’s review the TRIGGERING EVENTS. Then we’ll give a very brief summary of each of the six Buy-Sell plans.
As you remember, the Buy-Sell is a written agreement and comes into play when a specific event calls for the selling and buying of an owner’s interest in the business. The list includes but not limited to the following. There can be the retirement of an owner(s), some form of incapacity such as a long or even short term disability, a divorce, business re-organization, premature death or even bankruptcy to name just a few. Now for a quick review of each of the six Buy-Sell Plans.
The Entity Buy-Sell. In this document, the BUSINESS buys the shares of one of the shareholders in the company. The departing owner(shareholder) or his/her estate sells that owners’ interests back to the business.
In the Cross-Purchase Plan, each of the owners buys and sells their respective shares in the business to the other remaining shareholders upon a specific triggering event.
Sometimes, upon the advice of an attorney, accountant or finanacial planner, the BUYERS and SELLERS are not decided until the specific triggering event occurs. This is called the WAIT AND SEE METHOD. It is often referred to as a HYBRID BUY-SELL.
In our fourth Buy-Sell we discussed how a Sole Proprietor works within the Business Succession Planning. Here most any third party is the BUYER and the sole proprietor is the SELLER. The third party could be a KEY EMPLOYEE, a competitor, or some interested party.
Next we discussed an easy, efficient way to handle multiple owners. This is the TRUSTEED BUY-SELL document. Here a trustee is selected to do the buying and selling on behalf of each owner(s).
Lastly, we spoke about a SECTION 303 PARTIAL STOCK REDEMPTION PLAN. This allows an owner of a closely held corporation, or Sub S corporation the ability to sell off part of the business to cover final expenses, estate taxes, and administrative expenses. The business must be at least 35% of the owners entire estate.
There you have it. Next we’ll do a few comparisons of the different Buy-Sells to give you a better understanding how they might fit in your respective business. Stay with us as I’m going to be sharing a real live CASE STUDY. That’s coming up soon.