The most common event covered by a buy/sell agreement is the death of a partner describing the measures taken and the method of financing, such as. B the proceeds of a life insurance policy, to redeem the business interests of the deceased partner. A well-developed agreement also contains other provisions, such as a shotgun clause, triggered in situations where a business partnership has deteriorated sharply, a right of pre-emption vis-à-vis the other partner before the sale to a foreigner, the retirement or departure of a partner, the obstruction of a partner or other specific circumstances such as serious misconduct, detention or divorce, and establishes the rules for ordered liquidation or restructuring. Appropriate planning and guidance is needed to optimize results for all parties involved. At a fundamental level, there are two methods for structuring purchase/sale agreements in the event of death. Either the surviving shareholders can acquire the shares of the deceased, or the company can acquire the shares of the deceased by withdrawing the shares. If the agreement provides for the surviving shareholders to purchase the shares of the deceased, the purchase/sale obligation may be financed by shareholder-owned insurance using the “cross-buy” method or may be financed by company-owned insurance using the “company withdrawal” method. Declining funds: this method of financing purchase-sale agreements makes it possible to retain commercial profits and cover the costs of a purchase-sale agreement. However, if an owner has died after the implementation of this strategy, the company cannot raise the necessary funds to fulfill its withdrawal obligation. The death benefit must correspond to the value of that shareholder`s shares, calculated or set out in the agreement. The message can be integrated into a purchase-sale contract or a separate document. The authors propose to include the mention in the purchase-sale agreement and to use a separate notification and consent for each directive to provide simple proof of compliance with the notification and consent requirement. (Appendices 1 and 2 contain notification templates and consent forms.) If it is a separate document, it may be made by a third party, z.B.
a lawyer, established or provided by an insurance agent, but a qualified tax advisor should verify any communication made by an agent or other third party. The communication must contain the maximum nominal amount of the policy. The authors recommend being mistaken in favour of a very high amount in consent to provide a cushion that includes increased death benefits due to the investment of present value, if any. You will find examples at the end of this article. Incorporating notification into the purchase-sale contract can solve the problem that separate notification and approval is not done in a timely manner A business or other employer that has one or more life insurance policies must also file Form 8925 each year containing its income tax return. . . .