BUY SELL WITH CORPORATE TRUSTEE

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.

Online Advertising Agreement

What is included

Buy Sell Agreement with Corporate Trustee includes all the aspects of a

Buy/Sell Agreement including:-

  • Provisions for corporate trustees
  • Contemplates ownership of shares in the business via trusts

A Buy Sell Agreement for use with co-owners of a business who own their shares through a trust.

A Buy Sell Agreement, also known as a buyout agreement, is a legally binding agreement between co-owners of a business that governs the situation if a co-owner dies or is otherwise forced to leave the business, or chooses to leave the business.

It may be thought of as a sort of premarital agreement between business partners/shareholders or is sometimes called a “business will”. An insured buy–sell agreement (triggered buyout is funded with life insurance on the participating owners’ lives) is often recommended by business-succession specialists and financial planners to ensure that the buy–sell arrangement is well-funded and to guarantee that there will be money when the buy–sell event is triggered.

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BUY SELL AGREEMENT WITH CORPORATE TRUSTEE
What is a Buy Sell Agreement with Corporate Trustee

Buy Sell Agreement with Corporate Trustee

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.

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?

 

### Benefits of a Buy-Sell Agreement with a Corporate Trustee

1. **Professional Management**:
– **Expertise**: Corporate trustees bring expertise in handling complex financial and legal transactions, ensuring that the buy-sell agreement is managed efficiently and effectively.
– **Consistency**: They provide consistent management of the agreement, unaffected by changes in individual circumstances or ownership.

2. **Impartiality and Neutrality**:
– **Conflict Reduction**: A corporate trustee acts as a neutral third party, reducing the potential for conflicts among business owners during the execution of the buy-sell agreement.
– **Fair Decision-Making**: Ensures that decisions regarding the buy-sell agreement are made impartially, based on the terms of the agreement rather than personal interests.

3. **Enhanced Security**:
– **Asset Protection**: Corporate trustees have fiduciary responsibilities to protect the assets and interests of the beneficiaries, providing an additional layer of security for the agreement.
– **Compliance**: They ensure that all transactions are compliant with relevant laws and regulations, reducing the risk of legal issues.

4. **Efficient Execution**:
– **Timely Actions**: Corporate trustees can act quickly and efficiently to execute the terms of the buy-sell agreement when triggering events occur, such as the death or disability of an owner.
– **Resource Availability**: They have the resources and infrastructure to handle the administrative and financial aspects of the agreement smoothly.

5. **Continuity and Stability**:
– **Long-Term Management**: Corporate trustees provide continuity in the management of the buy-sell agreement, which is particularly important for long-term business planning and stability.
– **Independent of Personal Changes**: The corporate trustee remains in place regardless of changes in individual ownership or management, ensuring ongoing stability.

6. **Facilitated Valuation Process**:
– **Objective Valuation**: The corporate trustee can facilitate an objective valuation of the business interest being bought or sold, ensuring fairness and adherence to the agreement’s terms.
– **Professional Appraisal**: They often have access to professional appraisers and valuation experts, enhancing the accuracy of the business valuation.

7. **Financial Management**:
– **Funding Mechanisms**: Corporate trustees can manage the funding mechanisms of the buy-sell agreement, such as life insurance policies or buyout funds, ensuring they are properly maintained and used as intended.
– **Investment Management**: They can also manage any investments related to the agreement, optimizing returns and ensuring funds are available when needed.

8. **Confidentiality**:
– **Privacy Protection**: Corporate trustees are bound by fiduciary duties to maintain the confidentiality of sensitive business information, protecting the privacy of the business and its owners.

### Situations Where a Corporate Trustee is Particularly Beneficial

1. **Complex Ownership Structures**:
– Businesses with multiple owners, complex ownership structures, or significant assets benefit from the professional management and neutrality of a corporate trustee.

2. **Succession Planning**:
– When business succession is a critical issue, a corporate trustee ensures that the transition of ownership is handled smoothly and in accordance with the buy-sell agreement.

3. **Family-Owned Businesses**:
– In family-owned businesses, a corporate trustee can help mitigate potential conflicts among family members and ensure the business remains within the family.

4. **High-Value Transactions**:
– For businesses with high-value transactions, a corporate trustee provides the expertise and security necessary to manage significant financial transfers effectively.

### Example Scenario

A family-owned manufacturing company with three siblings as co-owners establishes a buy-sell agreement with a corporate trustee. The agreement specifies that in the event of the death or disability of one sibling, the corporate trustee will manage the buyout process. The trustee will use life insurance proceeds to buy the departing sibling’s shares and redistribute them according to the agreement. This arrangement ensures a smooth transition, maintains family harmony, and protects the business’s continuity and financial health.

### Conclusion

A buy-sell agreement with a corporate trustee offers numerous benefits, including professional management, impartiality, enhanced security, and efficient execution. By providing stability, continuity, and expertise, a corporate trustee ensures that the buy-sell agreement is effectively implemented, protecting the interests of all parties involved and supporting the long-term success of the business.

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