Buy / Sell Agreements on the Death of a Shareholder
In a recent blog post I outlined the benefits of dual wills for business owners as a means of providing a tax efficient manner of transferring the value of a business interest to his or her beneficiaries. However, this is only of value if there is something to be transferred to the beneficiaries, in other words, ensuring that a business owner’s estate will receive money for his or her share in the business is equally as important. This can be achieved with careful planning through a shareholders agreement. The first step in the process is to have a buy/sell provision in the shareholders’ agreement specifying that, in the event of the death of a shareholder, the remaining shareholders will purchase the deceased’s shares (with the added benefit that the remaining shareholders do not risk co-owning the business with an undesired third party).