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Buy-Sell Agreement

This checklist is used to gather the necessary information and make the appropriate decisions to implement a Buy-Sell Agreement between partners or shareholders of a business.

A. Facts you need to gather and consider:

1. General information regarding corporation.

a. Name of corporation.

b. Address of principal office.

c. Date of incorporation.

d. State of incorporation.

e. Principal business.

f. Names and addresses of directors.

g. Names, addresses, and titles of officers.

h. Name and address of accountant.

2. Information regarding shares and shareholders of corporation.

a. Total number of shares issued by corporation.

b. Number of shareholders.

c. Names and addresses of shareholders and their spouses.

d. Number of shares owned by each individual shareholder.

e. Whether corporation employs any shareholders and, if so, capacity in which each is employed.

f. Approximate fair market value of shares, if known.

3. Conditions upon which buy-sell agreement will become operative, such as:

a. Death of any shareholder.

b. Permanent disability of any shareholder.

c. Retirement of any shareholder.

d. Withdrawal of any shareholder from business of corporation.

e. Attempted sale or transfer by any shareholder of all or part of his or her interest.

f. Other operative conditions.

4. Parties entitled to purchase shares under buy-sell agreement:

NOTE: Although the parties may express a preference for a particular type of buy-sell arrangement, legal considerations may dictate the type of arrangement that will actually be most advantageous or suitable.

a. Remaining shareholders (cross-purchase agreement);

b. Corporation (entity purchase agreement); or

c. Combination of cross-purchase and entity purchase agreement.

5. Nature of purchaser's obligation under buy-sell agreement; either:

a. Mandatory duty to purchase shares; or

b. Optional right to purchase shares (right of first refusal).

NOTE: Purchase upon death of a shareholder is usually made mandatory, to ensure that the business will continue despite the death of a shareholder, while purchase upon any other events is usually made optional. The nature of the obligation to purchase can affect the determination of whether or not the valuation stated in a buy-sell agreement will be controlling for federal estate tax valuation purposes.

6. How parties intend to fund purchase of shares.

NOTE: When eliciting this information, the attorney should bear in mind that the method of funding contemplated by the clients may not necessarily be the most desirable, and should counsel them that further investigation may be necessary. Funding should always be investigated and reconsidered at the preliminary determination stage.

a. Life insurance.

b. Corporate surplus.

c. Corporate reserve.

d. Distribution of corporate assets.

e. Personal assets.

7. If agreement will be funded with life insurance:

a. Name and address of corporation's insurance agent or broker.

b. If parties contemplate funding agreement with existing policies:

(1) Name of carrier(s).

(2) Policy numbers.

(3) Type and amount of policies.

(4) Current owner of policies.

(5) Name(s) of current beneficiaries.

(6) Amount of premiums.

(7) Premium payment terms.

8. If clients wish to have a trustee administer agreement:

a. Name of trust company.

b. Principal place of business of trust company.

B. Documents to provide your attorney:

1. Articles of incorporation.

2. Bylaws.

3. Any shareholders' agreements imposing transfer restrictions on corporate shares.

4. Any documents to or from Commissioner of Corporations regarding qualification or exemption of corporate shares.

5. Corporate financial statements for preceding five years.

6. Any documents reflecting original cost and present worth of corporate assets.

7. Any insurance policies that parties propose to use to fund buy-sell agreement.