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Buy-sell agreements are one of the most important and yet often overlooked documents a closely-held business can have in place. This agreement establishes how the business will continue and ownership transferred upon a triggering event such as death, disability, retirement, divorce, or bankruptcy of one of the business owners.
A properly drafted buy-sell agreement can achieve all of these goals by:
1. Providing that upon the occurrence of a specified "triggering event," owners are assured that their interest in the business will be purchased;
2. Providing that the owner’s interest must be sold to the company, the remaining owners, or a combination of the two;
3. Providing a mechanism whereby the purchase price either is determined by an established formula or may be determined by market conditions in existence upon the occurrence of the event;
4. Identifying a source of funding, such as insurance policies, so that the liquidity needs of the business or its owners will be manageable.
A buy-sell agreement is especially useful in estate planning, as it provides the ability to fix the purchase price and therefore the taxable value of a business interest. Agreeing to a purchase price can minimize the possibility of unfair treatment to heirs.
Spectrum Management Group
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