A&S: BUY-SELL AGREEMENTS

Question 1

BUY SELL AGREMENTS:

Answer 1

NOT INSURANCE

agreement/contract btwn biz owners

protects biz on case 1 owner dies
get ore definition from textbook

Question 2

Buy sell agrements: disability

Answer 2

when disabled:

• other partner would own entire biz, can choose new partner
• disabled partner gets paid for their share of biz

Question 3

buy sell agreements: disabled def

Answer 3

• own occ

- need to be disabled for certai amout of time– usually long

Question 4

forms of buy/sell agreements (3)

Answer 4

• guaranteed buyer
• guaranteed price/formula
• guaranteed funding

Question 5

Guarenteed buyer

Answer 5

states buyer and seller MUST follow through w tx

Question 6

Guaranteed Price/formula

Answer 6

• previously agreed upon price - not ideal
• previously agreed upon formula: i.e 3x last year sales– bestmethod
• independant 3rd party valuator

Question 7

Guaranteed funding

Answer 7

need assurance that purchaser has the money

Question 8

funding buy out on death

Answer 8

• can do so w life insurance

- if either owner pases away, other will receive death benefit to satisfy the buy ouy

Question 9

funding buy out on disability

Answer 9

Disability Buy out policy:

if insured suffers disability per definition in agreement + waiting period, lump sum paid

Question 10

Disability buy out policy: waiting period

Answer 10

• typically 1-2 years bc large lump sum amount (i.e $2M)

Question 11

disability buy out policy: disabled definition

Answer 11

• must be own or regular occ

- definition in agreement must match definition in buy sell agreement

Question 12

2 ways to structure buy sell agreements

Answer 12

1. Criss cross approach

2. Entity Purchase

Question 13

Criss cross approach

Answer 13

• each partner agrees to sell other partner their hare of biz on death
• each buys insurance on the others life
• good for 2 partners

Question 14

Entity purchase

Answer 14

• corp/partnership purchasing deceased partner shares

- better when more owners