Sample One-Way Buy Sell Agreement
Each company is unique in structure. A company with multiple co-founders would have a more complicated buyout agreement. While a sole proprietorship is often easier to design and execute. This list is intended to give you a general overview of the clauses and scenarios that should be considered in most buy-sell agreements. These agreements are often compared to marriage contracts for companies. They determine what happens to the ownership of the business when one of the owners (or individual entrepreneurs) undergoes life changes that may influence the continuation of the business itself. Life changes can range from divorce or bankruptcy to death. The buy-sell agreement protects the business and the remaining owners from the effects of an owner`s personal life that can impact the business. Greg, as the owner of the policy (or his executor), could sell the policy at its fair market value to either Ron (the insured) or CCC (100% owned by Ron). Both transfers are considered derogations from the IRC ยง 101 (a) (2) (B) transfer rules, which maintains the income tax-exempt status of the policy`s death benefit. The buyer usually acquires a life insurance policy for your life, sufficient to fulfill the payment obligations of the contract.
The buyer would be the owner and beneficiary of this policy. The buyer would likely have an obligation under the agreement to maintain the policy through premiums and to inform you prior to exercising insurance rights that may affect its value. If the buyer is also required to buy the business if you are hindered, the buyer will often want to insure this obligation as well. If Greg has not been able to fulfill the terms of the purchase-sale agreement, maintaining the life insurance policy through the sale to Ron or ILIT ensures that Ron`s heirs will be taken care of regardless of the deal agreement. After Rons` death, Mary will benefit from tax-exempt policy revenue to protect her future livelihoods, whether under the buy-sell agreement or, therefore, that she is a beneficiary of the ILIT. . . .
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