A sales contract sets out the parameters for the transfer of participation after the “event triggers” indicated. B such as the death or long-term disability of an owner, the loss of the licence or any other legal guardianship, retirement, bankruptcy or divorce. As a general rule, the agreement also defines how the purchase price of the shares held by the stripper owner is determined, for example. B indicating the evaluation method to be used. Involuntary transfer of shares. Sales contracts should also limit the involuntary transfer of shares, i.e. the transfer of shares to a creditor or alienated spouse in connection with divorce compensation. The most common method of dealing with this issue is to provide for the automatic offer of shares subject to involuntary transfer to the company and/or other shareholders immediately prior to the entry into force of an involuntary transfer.  In accordance with Regulation 20.2031-2 (h) or Section 2703, a price set in a purchase-sale contract may not be binding on the IRS for inheritance tax purposes. Thus, the estate of a deceased owner is required by the agreement to sell its shares in the business at the contract price, but it may have to declare a higher value for federal property tax purposes and, therefore, pay inheritance tax on that additional phantom value. In practice, the parties must be able to demonstrate that the agreement was intended to offer a fair price in all cases (which can be updated from time to time) and not to play the inheritance tax system.
A detailed discussion on the actual requirements of the Regatta. 20.2031-2 (h) and Desart 2703 are beyond the scope of this article. Valuator. There are a number of different methods for determining price in sales contracts, and a business valuation professional with training, experience and references like the AICPA ABV can make a useful contribution to how the parties to the agreement can benefit from the plan. The disadvantages of a withdrawal contract. While it is easier to implement withdrawal agreements, they can have negative tax consequences. CPA. Purchase-sale agreements create significant financial benefits and obligations for both buyers and sellers. CPAs understand the impact of these, both commercially and individually, and many are uniquely qualified to address important income tax considerations for buyers and sellers, estate planning for individuals and the impact of the purchase obligation on the business.
ACCORD PROCESS In order to design a buyout agreement that satisfies all owners and excludes future conflicts, owners need to understand their objectives, options and the impact of a future transaction. CPAs can help clarify owners` decisions and facilitate discussion. One option is to bring all parties to the agreement and their advisors together in a neutral and comfortable place. BUILD A GOOD TEAM Buy-Sell agreements that formalize the wishes of two or more owners on an important topic are often complex. Each contracting party has rights, obligations, tax considerations and financial consequences. Depending on the company, contract preparation may include a combination of consultants (to advise clients on succession matters), corporate controllers (to determine the value of the business), tax specialists (to identify relevant tax considerations and maximize value) and auditors (to deal with potential liabilities generated by these off-balance sheet agreements).