Below is a sample buy-sell agreement. It works for many business but as discussed below it’s not a one-size-fits-all. In this buy sell agreement the shares of the deceased shareholder are being purchased by the Company instead of the other shareholders. It is typically funded by an insurance policy but that’s not required. One could also structure a buy sell agreement so that the shares are being purchased by the other shareholders with after tax dollars. The general purpose of a buy-sell agreement is to ensure continuity of ownership and provide a safety net for business planning purposes.
Article IV: This is not a standard or necessary provision. This article is essentially a right of first refusal. You could delete most of this if it doesn’t apply to you. You could just restrict any transfer of shares of the company without the approval of the other shareholders and keep it simple that way. You could also include things such as a Tag Along or Drag Along provision.
Article VI: This article discussed the purchase of a shareholder’s shares in the event of disability. This is an example only. You could change the compensation before a permanent disability has been declared. If this is going to be funded by a disability insurance policy you may want to adjust this section to mimic the definitions in that policy.
Article VII: This article addresses the valuation of the company/shares. It references a separate attachment called “Certificate of Value” which should get updated periodically. Valuation is perhaps the most complex aspect of a buy sell agreement because there are numerous ways to value a company. The IRS discusses and recognizes three approaches to valuation HERE.
Article VIII: This article deals with the closing and payment of the purchase price. Again, this is an example only. Depending on how this buy sell agreement is going to be funded most of this Article may not be applicable to your situation. However, in many cases I see buy sell agreements partially funded by insurance with the balance being paid over time pursuant to a promissory note. That’s how payment is structured in this sample buy sell agreement.
Article XI: This article pertains to corporations that are seeking to maintain their S-Corporation status. If your corporation is an S Corporation, then you may want to consider using this language.
Article XII and XIII: These two articles include language regarding the company’s or the shareholder’s purchase of insurance policies. Whether you include all or any of the language in these two articles will depend on how this agreement is going to be funded. Again, this sample buy sell agreement isn’t necessarily for everyone, but hopefully it gets the wheels turning.
Before you finalize your buy-sell agreement a consultation with an attorney, financial advisor, and CPA is recommended.