A Shareholders’ Buy-Sell Agreement, also known as a Cross-Purchase Agreement, is a legal document that defines the terms of a buy-sell agreement between shareholders in a corporation. It is used to protect the interests of the shareholders in the event of a shareholder's death, disability, retirement, or other unexpected change in ownership. The agreement establishes a predetermined price for the shares, and outlines a process for the sale of the shares in the event of the triggering events. It also establishes the terms of the buy-sell agreement, including the rights of the parties, the payment of the purchase price, and other matters related to the transfer of ownership. There are two primary types of Shareholders’ Buy-Sell Agreement— - Cross-Purchase Agreement: the Entity Purchase agreement and the Stock Redemption agreement. The Entity Purchase agreement is an agreement between the corporation or LLC and the shareholder, whereby the corporation or LLC purchases the stock of the shareholder in the event of a triggering event. The Stock Redemption agreement is an agreement between the shareholders themselves, whereby the shares are purchased from the shareholder in the event of a triggering event.
Shareholders' Buy-Sell Agreement - Cross-Purchase Agreement
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FAQ
In a cross purchase buy-sell agreement, each business owner buys a life insurance policy on the other owner(s). With multiple owners, this can get very complex and complicated. Instead, try a trusteed cross purchase buy-sell, in which a third-party (acting as trustee) takes care of the buy-sell arrangement.
While a buy-sell agreement typically addresses the sale of shares among co-owners of a business, a shareholder agreement may address a wider range of issues, including the management and control of the business, the distribution of profits, and the appointment of directors and officers.
In a cross purchase buy-sell agreement, each business owner buys a life insurance policy on the other owner(s). With multiple owners, this can get very complex and complicated. Instead, try a trusteed cross purchase buy-sell, in which a third-party (acting as trustee) takes care of the buy-sell arrangement.
sell agreement provides a plan for the orderly transfer of any owner's business interest. Consider a buysell agreement for your business if: You have two or more owners. You want to provide protection in the event of any owner's termination of employment, retirement, divorce, disability, or death.
Example: Alma owns 60%, Betty 20% and Catherine 20% of their company. The cross-purchase agreement states that if one owner dies, her interest is divided equally between the survivors. Therefore, if Betty dies, Alma's ownership interest grows from 60% to 70%, while Catherine's interest grows from 20% to 30%.
Cross purchase buy sell agreements have a variety of purposes. One of the main benefits of this document is that it allows the remaining partners in a business to purchase the shares of a partner who is leaving the company. In addition, this document will decide how these shares can be purchased or distributed.
The disadvantages of cross-purchase buy-sell agreements include: Life insurance policies are not owned by the business so any cash values cannot be considered company assets. Depending on the varying ages of the business owner's actual premium payments may vary greatly.