Buy/Sell Deeds explained
WHY HAVE A BUY/SELL DEED?
A Buy/Sell Deed is an agreement between the owners of a company or unit trust that upon the death or permanent disablement of a director or key person associated with a shareholder/unitholder, that shareholder/unitholder must transfer its shares to the remaining shareholders in exchange for payment.
The method of determining the price is agreed and the funding of that payment usually comes from the proceeds of insurance policies to be taken out for those risks by the shareholders/unitholders.
A Buy/Sell Agreement is not a general Shareholders Agreement or Unitholders Agreement so it does not regulate all dealings in relation to the company.
COMMON SCENARIOS A BUY/SELL COULD HELP PREVENT
Consider the following and how it may affect you and your company…
- A shareholder dies and you as the remaining shareholder inherit an unintended (and potentially non-income producing) business partner such as the deceased shareholder’s spouse (as they receive the deceased’s assets via their Will), with company profits being paid out according to the shareholdings.
- You have to buy shares from a deceased shareholder’s estate above their value.
- Your family do not get the best price for your shares in the company.
- The remaining shareholders don’t have available funds to pay out a deceased shareholder or a shareholder who can no longer contribute to the business due to total and permanent disability.
- The business either needs to be sold or funds need to be borrowed by the remaining shareholders or the company to make the payments.
- A key person to the company has died, leaving the company in the position of losing a key source of revenue, client relationships and knowhow, affecting the value of the company and its business and its viability in the future.
A Buy/Sell Agreement is designed to bring certainty in relation to the exit from a business as the result of death or permanent disability of a key person – certainty for an ill shareholder, a deceased shareholder’s family, the remaining owners and the company itself. Don’t leave it to chance.
Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to Buy/Sell Deeds, Shareholders Agreements, any or any commercial dispute or issue, contact Craig Pryor on (02) 9521 2455 or email firstname.lastname@example.org.
This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your legal concerns or objectives.