Does your buy-sell cover all these transfer events, if not which make sure it was your decision not to deal with them:
TRANSFER EVENTS
Buy-sell agreements can be designed to handle the unhappiness that can arise when any of the following events happen to the shareholders of a closely held company:
- Death of a shareholder
- Disability of a shareholder
- Divorce of a shareholder
- Bankruptcy of a shareholder
- Sale of part or all of the company to a third party
- Retirement of a shareholder
- Involuntary termination of a shareholder
- Business dispute among shareholders
What provisions are in your document, which should be addressed, you should review the buy-sell agreement at a minimum every 2 or 3 years.
- Who is included in the Agreement? Who has voting control? Are there any changes in either who is included or in the proportions of ownership since you last reviewed the document?
- What events are covered in the Agreement?
- Transfer events (death, disability, business disputes, etc.) trigger either mandatory or optional buyouts. The choices you made about what event triggers mandatory buyouts vs. which trigger optional buyouts may no longer be the best choices. As companies grow in value (and have more cash on hand) shareholders more often choose the mandatory buyout option.
- How does your buy-sell agreement determine how the amount of future buyouts will be calculated? In the third part of this series, we'll look at several ways to establish value and which methods work best.
- Finally, look at how you've decided to fund particular types of buyouts. If, for example, there is a life insurance funding a buyout of a deceased shareholder, is it in a sufficient amount? Is the policy owned by the proper party? Are the beneficiary designations correct? If a lifetime buyout of an owner is expected, how can that buyout best be (at least partially) pre-funded and designed to minimize overall taxes?
