Buy / Sell Agreements

Dalilu

Buy-Sell Agreements

A buy-sell agreement is a legal document among co-owners of a business, that outlines how a partner’s shares can be distributed or reassigned in the event of death, disability, or leaves the business.

The agreement also establishes a method of value for the business.

It determines how the shares are to be sold or purchased as well as who exercises the method.
The buy-sell agreement can often take two forms, a cross purchase, where the remaining owners purchase the share of the business for sale or a redemption agreement where the business buys back its own share.

Often life insurance is used to fund these buyouts and provide for an economic source of capital.

The purpose of the agreement is to help manage potentially difficult situations in an orderly fashion. The agreement can restrict owners from selling to outside partners. It can prevent other family members of the deceased partner from becoming new partners. It helps provide for orderly control of the business. Additionally, it provides for security, and certainty to the heirs of the deceased or withdrawing partner.

The buy-sell agreement should also look at the impact of shareholder loans and identify how outstanding loans are to be dealt with. Can the estate immediately call existing loans, what kind of financials impact does that create, leaving existing shareholder loan accounts open, with no definition, or structure to deal with, could prove a significant financial burden.

Location

RR Dobel Insurance Agency

11 – 150 Creek Bend Road
Winnipeg, MB R2N 0J1
email: info@dobelinsurance.ca
phone: (204) 452-3900