BUY SELL AGREEMEENT

A buy/sell agreement is a contract between business partners where the surviving partners buy out the other partner’s interest should a specific event occur. Specific events usually include death, and long-term disability. A buy-sell agreement can consist of several clauses in a partnership or shareholder agreement. It can also take the form of a separate, freestanding agreement. This suite contains free-standing agreements that can be used together with a partnership, company or unit trust.

consultancy agreement between employee & client

What is included

A buy/sell agreement is a contract between business partners where the surviving partners buy out the other partner’s interest should a specific event occur. Specific events usually include death, and long-term disability. A buy-sell agreement can consist of several clauses in a partnership or shareholder agreement. It can also take the form of a separate, freestanding agreement. This suite contains free-standing agreements that can be used together with a partnership, company or unit trust.

The Buy Sell agreement template may be used with partnerships, companies or trusts, and for  co-owners of a business who own their shares outright, rather than through a trust.

This includes provisions for:-

  • Creating the mechanism to buy and sell shares in the business
  • Method for determining market value
  • Payment of purchase monies
  • Transfer
  • Termination

13 Pages long.

Comprehensive Coverage

Ensuring you have everything you need in one place.

Free With Every Purchase

Our legal drafting booklet to guide you through the necessary steps in editing your documents.

Easy Customisation

Each document is designed to be easily editable, allowing you to tailor the agreements to your specific needs without hassle.

Legally Sound

All our documents are crafted by legal professionals and adhere to Australian legal standards, giving you confidence in their validity.

Suitability

Australia

Preview Sample

 

BUY SELL AGREEMENT
What is a Buy Sell Agreement?

 

An insured buy-sell agreement is one in which a triggered buyout is funded with life insurance. A policy is taken out on each of the participating owner’s lives. The life insurance policy provides the surviving partners with the money to be able to buy out the deceased/disabled/departing partner’s interest.  Such an arrangement is often recommended by financial planners to ensure the buy-sell there will be money when the buy-sell event is triggered.  The funding aspect is covered in a separate agreement called a buy/sell funding agreement.

Capital Gains Tax implications

A trauma or total and permanent disability insurance policy is subject to CGT if it is owned by the business. Only a trauma or total and permanent disability insurance policy owned by the insured is exempt.  The business owner often holds the policy on themselves. As the buy/sell agreement results in the sale of the business, a CGT liability will arise to the vendor. The small business CGT concessions may operate to reduce this CGT liability.

Deductibility of premiums

The essential characteristic of a deductible insurance premium is that it be intended to provide an income. A self-employed business owner can claim a deduction for premiums on a policy which will pay income during a period they are disabled. Normally, if a policy includes a component to pay a sum on death or disability, the component relating to death cover will not be deductible.

What are the benefits of a Buy Sell Agreement

A buy-sell agreement, also known as a buyout agreement, is a legally binding contract that outlines the process for buying and selling an owner’s interest in a business in specific situations, such as the death, disability, or retirement of an owner. Here are the key benefits of having a buy-sell agreement in place:

### Benefits of a Buy-Sell Agreement

1. **Ensures Business Continuity**:
– **Smooth Transition**: Facilitates a smooth transition of ownership, ensuring that the business can continue operating without significant disruption.
– **Stability**: Provides stability and reduces uncertainty for employees, customers, and creditors by having a clear plan for changes in ownership.

2. **Prevents Disputes Among Owners**:
– **Clear Terms**: Clearly defines the terms and conditions for the buyout, reducing the potential for conflicts among co-owners.
– **Dispute Resolution**: Includes mechanisms for resolving disputes that may arise during the buyout process.

3. **Protects Business Interests**:
– **Control**: Prevents unwanted parties, such as competitors or outsiders, from acquiring an ownership interest in the business.
– **Consistency**: Ensures that the business remains under the control of individuals who are committed to its long-term success.

4. **Provides Financial Security**:
– **Valuation Methods**: Establishes a fair and agreed-upon method for valuing the business, ensuring that the selling owner or their heirs receive a fair price.
– **Funding Mechanisms**: Often includes funding mechanisms, such as life insurance policies, to ensure that the buying owners have the financial resources to complete the buyout.

5. **Facilitates Estate Planning**:
– **Heir Protection**: Protects the interests of the deceased owner’s heirs by providing a clear process for them to receive fair compensation for the owner’s interest in the business.
– **Tax Planning**: Helps in tax planning by setting up a structured transfer of ownership that may have favorable tax implications.

6. **Clarifies Roles and Responsibilities**:
– **Defined Process**: Outlines the specific steps to be taken when a triggering event occurs, clarifying the roles and responsibilities of each party involved in the buyout.
– **Prevents Ambiguity**: Removes ambiguity regarding what happens to an owner’s share in the business, providing peace of mind to all parties involved.

### Common Scenarios Covered by a Buy-Sell Agreement

1. **Death of an Owner**:
– The agreement specifies how the deceased owner’s interest will be transferred, often funded by life insurance.

2. **Disability of an Owner**:
– Defines the process for buying out an owner who becomes permanently disabled and can no longer participate in the business.

3. **Retirement or Withdrawal**:
– Details the terms for an owner who wishes to retire or voluntarily leave the business.

4. **Divorce of an Owner**:
– Prevents an owner’s ex-spouse from obtaining an ownership interest in the business as part of a divorce settlement.

5. **Involuntary Transfer**:
– Addresses situations where an owner is forced to sell their interest due to bankruptcy, legal issues, or other circumstances.

### Types of Buy-Sell Agreements

1. **Cross-Purchase Agreement**:
– Each owner agrees to buy a portion of the departing owner’s interest. This type is common in smaller businesses with a few owners.

2. **Redemption Agreement**:
– The business itself buys the departing owner’s interest. This type is more common in larger businesses or corporations.

3. **Hybrid Agreement**:
– Combines elements of both cross-purchase and redemption agreements, giving flexibility in how the buyout can be funded and executed.

### Conclusion

A buy-sell agreement is a critical tool for any business with multiple owners. It ensures business continuity, prevents disputes, protects business interests, and provides financial security for owners and their families. By clearly defining the terms and conditions for ownership transitions, a buy-sell agreement helps safeguard the future of the business and its stakeholders.

About us

Established since 2015, Precedents Online leads the industry with a diverse collection of over 300 legal templates. Our legal documents, meticulously crafted by practicing Solicitors and renowned legal authors, provide you with the precise solutions you seek. Step into a world where legal paperwork is made easy .

Eric Kalde is the author of over 300 +  practice guides published through the leading Australian legal publishers Precedents Online.
Lawyers all over Australia rely on Eric Kalde’s precedents and practice guides in their legal practice.
Free Legal Drafting Handbook

Precedents Online, helping you draft like a pro! Receive a free handbook with any purchase of our customisable legal document templates.  Start drafting with confidence using our expertly crafted precedents with our bonus guidebook.

Choose Your Template