Within a closely held corporation, shareholders are often concerned about what might occur if one of the owners dies. Will the deceased shareholder’s family retain the economic value of the corporate interest? Can the surviving owners avoid interference from the deceased shareholder’s family? Will the survivors have the economic resources to redeem the deceased owner’s interest? Given these concerns, corporate owners are best served by entering into a buy-sell agreement while they are all alive.
Forms of Buy-Sell Agreements
Owners usually choose from two basic types of buy-sell agreements.
Cross Purchase: With a cross-purchase agreement, each owner of the corporation purchases an insurance policy on the other shareholders. The purchaser is both owner and beneficiary of the policies. Upon the death of a shareholder, the other shareholders are then able to use the life insurance proceeds to purchase the deceased owner’s shares.
Stock Redemption: With a stock redemption agreement, the corporation owns policies on the lives of the shareholders. When a shareholder dies, the corporation buys the deceased shareholder’s interest in the company with the insurance proceeds.
Your business is unique and these agreements and insurance vehicles can be complicated with various tax consequences. Please contact me to discuss your situation.
Contact me to discuss your situation and best options.
