A powerful tool to help you control your destiny is the buy-sell agreement. This is a contractual agreement between shareholders and their corporation or between a shareholder and the other shareholders of the corporation. (Note: Partners also can enter into buy/sell agreements.) The agreement control what happens to the company stock in the event of a "triggering" event, such as the death of the shareholder. For example, the agreement might provide that, at the death of the shareholder, the stock is bought back by the corporation. As an alternative, the agreement might provide that the other shareholders buy the decedent's stock.
Benefits of a Buy-Sell Agreement:
- It provides a ready market for the shares in the event the owner's estate wants to sell the stock after the owner's death.
- It sets a price for the shares. In the right circumstances, it also fixes the value for estate tax purposes.
- It provies for a stable continuance of the business by avoiding unnecessary desagreements caused by unwanted new shareholders.
A well-drafted buy/sell agreement can solve several estate planning problems for the closely held business owner.
