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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

CONTENTS

  • 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 

What is the purpose of a buy sell agreement?
buysell 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.

 

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