Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
15 Cards in this Set
- Front
- Back
Buy-Sell Agreements
|
Planning method used for the disposition and continuation of small business interests that entails surviving business owners acquiring the interests of the decedent, or the business itself acquiring the interest
|
|
Advantages of a Buy-Sell Agreement
|
(1) Guarantees a market
(2) Provides liquidity (3) Pegs estate tax value of business interest (4) Provides for the continuation of a business (5) Makes the business more attractive to creditors (6) Prevents transfers to unrelated parties (7) Helps to avoid expensive appraisals |
|
Terms of a Buy-Sell
|
(1) Parties involved
(2) Purpose (3) Commitments (4) Business Interest Description (5) Transfer restrictions during lifetime (6) Purchase price (7) Funding (8) Transfer details (9) Modification/termination |
|
Characteristics of Proprietorship Buy-Sells
|
One owner: potential purchasers are key employees, group of employees
Life insurance may be used to purchase the business |
|
Partnership Buy-Sells
|
(1) Entity purchase
(2) Cross purchase |
|
Entity Purchase Agreement
|
A contract where the business entity purchases an owner's business interest upon the occurrence of specified events, such as death
|
|
Cross Purchase Agreements
|
Business owners purchase an owner's business interest upon the occurrence of stipulated events, such as death
|
|
Insurance Arrangements for Partnership Buy-Sells
|
(1) Entity Liquidation Agreements
(2) Cross-purchase Agreement These different agreements are funded by life insurance policies EL: Partnership owns the policy, is beneficiary CP: Partners own the policy, are beneficiaries |
|
Entity Liquidation Agreement
|
A buy-sell agreement that provides that the entity will purchase and then liquidate the interest of a decedent-partner death
|
|
Formula for determining the number of policies needed to cover all other partners is a Cross Purchase Agreement
|
N x (N-1)
|
|
Corporate Buy-Sell Agreements
|
(1) Stock Redemption (Entity Purchase)
(2) Corporate Cross-Purchase |
|
Stock-Redemption Buy-Sell Agreement
|
The corporation is the purchaser of the stock at the death of the shareholder; the stock is either retired or held as treasury stock, which allows for a proportional increase of ownership by surviving shareholders
|
|
Corporate Cross-Purchase Agreements
|
Each shareholder agrees to purchase a specified percentage of the decedent shareholder's stock at the time of death
|
|
Insurance Arrangements for Corporate Buy-Sells
|
For Entity Purchase (Stock Redemption):
The corporation is the applicant, owner, beneficiary of the policies; policy acquired on each party; business pays premiums, proceeds of policy go through business to decedent's estate; decedent's business interest goes to business and surviving owners' percentage increases For Cross-Purchase Agreements: Each shareholder purchases adequate life insurance on the life of other shareholders; N x (N-1) policies needed; the beneficiaries are the purchasers (business owners) of the policy; business owners pay premiums, and receive proceeds which go to decedent's estate, and the estate redeems the business interest and surviving owners ownership increases |
|
Methods of Price Setting for Buy-Sell Agreements
|
(1) Fixed Price
(2) Formula Determined Price (3) Appraisal Determined Price (4) Combination of Fixed, Formula, and Appraisal |