Request a Strategy Call and we will get in touch with you
Buy-Sell Agreements Insights
Will your business survive losing you?
February 2, 2024 / in Buy-Sell Agreements, Exit Planning / by Al Statz
Most entrepreneurs are a rare breed — full of optimism and confidence. But that faith and certainty can also make them feel invincible. Every business downturn will be the last, every new year will be another record, and every good leader retires happily with their family. Unfortunately, none of us are invincible. And if you’re like many business owners, a significant portion of your wealth — and your family’s income — is derived from your …
Buy-Sell Agreement Valuation Resources
August 28, 2023 / in Business Valuation, Buy-Sell Agreements / by Al Statz
Every business with two or more shareholders should have a buy-sell agreement. A buy-sell agreement is a legally binding contract that restricts and governs how shares are priced and transferred between shareholders or partners of closely-held businesses when certain trigger events occur. Arguably, valuation is the most important (and argued over) aspect of buy-sell transactions. A good one-third of our business valuation work relates to internal equity transactions, and because this is an area of …
“Closing of the Books” to Allocate Income on S-Corp Ownership Change
May 30, 2019 / in Buy-Sell Agreements / by Al Statz
As brokers and appraisers of closely-held and family-owned businesses, we work with a lot of S-Corporations. When S-Corp shares transfer subject to a buy-sell agreement, the valuation date, trigger date and transaction date rarely fall conveniently at the end of a year. That’s no problem for valuation experts. We can determine value as of any date. But what’s the fairest way to allocate taxable income among S-Corporation shareholders in a year in which ownership changes? …
Four Questions Your Buy-Sell Agreement Should Answer
January 8, 2018 / in Buy-Sell Agreements / by Al Statz
A buy-sell agreement is a common contract between shareholders that both restricts ownership and facilitates the transfer of shares in a closely-held company. The other shareholders or the company become the buyers (marketplace) for what would otherwise be highly illiquid stock. Every buy-sell agreement should answer four fundamental questions: 1. Who is the purchaser? Generally, buy-sell agreements take one of three approaches to determining who the purchaser will be: Redemption, Cross-Purchase or Hybrid. In a …
Does My Buy-Sell Agreement Establish Value for Estate Purposes?
December 20, 2017 / in Business Valuation, Buy-Sell Agreements, Exit Planning / by Al Statz
Buy-sell agreements that contain a clause that values stock at less than fair market value can be disregarded for tax purposes. It is important to consider the requirements of Internal Revenue Code (IRC) Section 2703 when developing an estate plan involving business interests in which 50% or more of the stock is family owned. Section 2703(a) states that a shareholder agreement (entered into after October 8, 1990) that allows for the acquisition or transfer of …
Hidden Problems with the Price Formula in Your Buy-Sell Agreement, and Solutions
May 12, 2017 / in Buy-Sell Agreements / by Al Statz
It is tempting to select a formula approach to pricing shares when business partners come and go. After all, a formula is easy for everyone to understand, and in theory at least, inexpensive to apply. If you’re satisfied with getting to a price, any price, then congratulations – job done. But the goal is to arrive at a price that is fair to all concerned. This article discusses some of the unforeseen problems with buy-sell …
Pricing Methodologies in Buy-Sell Agreements
April 29, 2015 / in Business Strategy, Buy-Sell Agreements / by Jim Leonhard
When it comes to valuing a business for tax filings, M&A transactions, ESOP’s and most other purposes, business appraisers are usually free to use all of the methodologies in their arsenal. But, when it comes to Buy-Sell Agreements that govern the sale or exchange of interests among closely-held business owners, many of these agreements specify a fixed amount or formula to price equity interests. Recently our firm analyzed the valuation and funding-related provisions used in thirteen buy-sell …
Funding Your Buy-Sell Transactions
April 22, 2015 / in Business Strategy, Buy-Sell Agreements / by Al Statz
A properly structured Buy-Sell Agreement (BSA) ensures a market for owners’ equity when they leave the business, restricts the transfer of shares to unwanted parties, and lays out a set of rules and processes that mitigate the overall risk of uncertainty when a trigger event occurs. However, without having adequate funding mechanism(s) in place, a well-intentioned buy-sell agreement may not satisfy the shareholders needs when a trigger occurs. In this post I’ll briefly outline the …
How a Covenant not to Compete Affects Value in Buy-Sell Agreements
April 1, 2015 / in Business Strategy, Buy-Sell Agreements / by Al Statz
When someone sells a privately-held company, the buyer usually insists that the seller sign a covenant not to compete. In fact, in over 20 years of business sales and acquisitions, I have yet to see a purchase agreement without a covenant-not-to-compete (CNTC) provision. Now let’s say that your Company or its shareholders purchase all of a departing 50% shareholder’s interest for fair market value; is it reasonable to expect that the selling shareholder would not …
Your Buy-Sell Agreement: In good shape? Needs a tune up? Or Disaster waiting to happen?
February 25, 2015 / in Business Strategy, Business Valuation, Buy-Sell Agreements / by Bob Altieri
An Ounce of Prevention is Worth a Pound of Cure I can’t tell you how many times I’ve heard from business owners and their spouses that a key person became disabled or died and left an operating closely-held business in turmoil. What, no Buy-Sell Agreement? Ask anyone who has been selling and appraising business for a number of years and they will tell you this sort of thing is common. All businesses with more than one shareholder should have …
Exit Strategies Group, Inc. is a leading provider of business sales and acquisitions, business valuations, and exit planning services for family owned and closely-held companies since 2002.
DRE #01878920
Member of
