Buy/Sell Agreements

A buy/sell agreement is a legal contract between a buyer and seller of a private corporation (CCPC).

Setting out all the terms in a binding agreement eliminates ambiguity and negotiations at the time of exercise.

A Properly Structured Agreement

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A properly-structured agreement requires the following:

  1. guaranteed purchaser
  2. guaranteed sale
  3. guaranteed price
  4. guaranteed funding
  5. guaranteed time

Guaranteed Purchaser

Who will buy?

  • the surviving partners must buy

Guaranteed Sale

Who will sell?

  • the estate of the deceased partner must sell

Guaranteed Price

What is the price?

  • have a formula or outside valuation

Guaranteed Funding

How to pay?

Guaranteed Time

When to transact?

  • usually at time of
    • disability
    • retirement
    • death

Using Insurance

Using insurance to fund the buy/sell agreement has these advantages

  • funds are available when needed
  • least expensive solution
  • new owner does not incur debt when buying the business
    • loans must be repaid

Type

The arrangement can be

  • cross purchase
  • criss-cross

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