Buy Sell Funding Agreement
A Buy Sell Funding Agreement in word format. Download, edit and reuse as you need.
ONLINE LEGAL DOCUMENTS
Buy Sell Funding Agreement
An agreement directing life insurance proceeds to fund the Buy Sell Agreement. Contains provisions for:
- Requirement to take out life insurance
- Payment of policy proceeds
- Payment amount
- Payment of premiums
Life insurance proceeds are used to purchase the share of an exiting business owner
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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.