Buy Sell Agreement
Buy Sell or Buy Out Agreement Template
A Buy Sell Funding 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 Funding 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 Funding 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
- 1 Definitions 3
- 2 Insurance
- 2.1 Life Insurance
- 2.2 Additional cover
- 3 Payment of Policy Proceeds
- 3.1 Payment on exercise of option
- 4 Payment Amount
- 4.1 Reduction of purchase price
- 5 General Provisions
- 5.1 Insurance premiums
- 5.2 Termination
- 5.3 Costs
- 5.4 Notices
- 5.5 Counterparts
- 6 Interpretation
- 6.1 Jurisdiction
- 6.2 In the interpretation of this agreement:
Buy Sell or Buy Out Agreement
This is general information and not legal information given by Precedents Online or its Authors