Business Owners | Members | Share Holders | Directors
By providing bespoke financial advice, developing quality relationships and caring for people, so that I can help fulfil their goals and aspirations; I implement financial solutions for my clients through selfless dedication to them and their families.
As your business grows in value and changes over the years, the one thing that you can be assured of is that legislation and your needs will also change. How often are you reviewing your business assurance planning alongside these changes? I’m sure you’ve heard the horror stories of what happens to businesses and family members when a partner or key individual passes away or becomes disabled and there is a problem with the business assurance plans..
I ensure that you NEVER HAVE TO WORRY about this.
HOW?
I do this by concentrating on the key priorities, understanding you, your family and your business. Only then can we develop/amend a strategy that is right for you, is cost effective and is flexible enough to cater for your growing business and changes in legislation. A simple solution to this problem is a properly structured Buy and Sell Arrangement (supported by a buy and sell agreement) that guarantees that on the disability or death of a business owner, the necessary funds will be available. A buy and sell agreement will ensure a seamless transition of ownership and protect the financial future of the business, while the deceased’s family receives an agreed price for their business interest.
Buy-sell agreements typically fall into one of three categories:
1. Corporate redemption agreements
2. Cross-purchase agreements
3. Hybrid agreements
In a corporate redemption agreement, the corporation is the purchaser of a shareholder’s shares. In a cross-purchase agreement, one or more of the remaining shareholders purchase the selling shareholder’s shares. A hybrid agreement is a combination of a corporate redemption agreement and a cross-purchase agreement, and provides the shareholders with flexibility to determine whom the purchaser will be.
Valuation Provisions of the Buy-Sell Agreement:
Most of the mechanisms for setting prices in buy-sell agreements generally fall into the following categories:
Formula based on the financial statements, such as book value, adjusted book value, a multiple or weighted average of historical earnings, or a combination of such variables
1. Structured negotiation among the parties
2. Third-party valuation
This needs to be review on at least biannually basis and the agreed values updated upwards or downward if required.
Estate Tax Considerations:
1. The offering price was fixed and determinable under the agreement.
2. The agreement was binding on the parties both during life and after death.
3. The agreement was entered into for bona fide business reasons.
4. The agreement was not a substitute for a testamentary disposition
If the lawful agreement is not up to date and correctly structured this could have EXTREMELY devastating effects on the deceased estate – it could be thrown out and the deceased estate will be double taxed (policy proceeds) and there will be no need to sell the shares, meaning an undesired new shareholder can inherit the shares.
