The typical buy-sell agreement also defines the method to be used to determine the repurchase price of the shares, selecting from options such as an agreed price with periodic revisions, a formula price based on book value or profit capitalization, or a valuation or reconciliation by third parties. When will a buy-sell contract be triggered? What are the differences between mandatory purchase triggers and optional triggers? Clients should play a role in formulating a succession settlement. They often have ideas about who will be the best CEO of the company after the owner retires, or have ideas about new products or services that the company could offer. Interviewing large clients about the company`s estate settlement can also allay customers` fears of doing business with the company in the future. A buy-sell contract is usually structured either in the form of a “cross purchase” contract or as a withdrawal contract. A cross purchase contract is an agreement between co-owners to acquire the commercial interests of the other after the death or any other withdrawal of one or more owners of the company. These agreements usually set a predetermined purchase price and, in some cases, are financed by life insurance acquired to insure the lives of individual business owners. In a business partnership, one method of succession planning is for each partner to acquire a life insurance policy that designates the other partner as the beneficiary. In this way, if a partner dies at a time when the surviving partner would not otherwise have enough money to buy the deceased partner`s share of ownership, the life insurance proceeds will allow that purchase. This type of inheritance regime is called a cross purchase contract and allows the surviving partner to continue operating the business.
If the purchase-sale contract is triggered by the obstruction of an owner, owners should include in the agreement a definition of “disability” to minimize differences of opinion between owners who buy and sell. If you are using disability insurance to fund the agreement, the policy itself should include an appropriate definition of disability that all parties understand. . . .