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| The Law Offices of Keith W. Michon, P.C. |
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1105 Massachusetts Avenue, Suite 1F Cambridge, Massachusetts 02138 Phone: (617) 492-1122 Fax: (617) 492-0303 |
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308 Harvard Road Stow, Massachusetts 01775 Phone: (978) 430-9175 Fax: (978) 897-5345 |
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Keith W. Michon, P.C. – Transfer of Ownership of a Closely Held Corporation
One way to transfer ownership of a closely-held corporation is through a Buy-Sell agreement. This agreement can restrict the free transferability of business interests to current owners as well as provide liquidity for owners. The agreement provides for the sale by one party and the purchase by another of a business interest on the occurrence of a triggering event. Examples of triggering events include termination of employment, disability or death.
There are different types of buy-sell agreements, but each provides the following benefits:
- Seller are able to convert their business interests into cash
- Seller receives a fair price for their business interest
- Continuity of management of the business
- Value of business interest is fixed for both estate planning and estate tax purposes
- Ownership is restricted to the present circle of owners-managers
Buy-sell agreements are often funded by life insurance as life insurance on the life of a deceased owner can provide a ready pool of cash that can be used to purchase the closely held business interest of a deceased business owner.
Whether or not life insurance is used to fund the buy-sell agreement, the seller's estate will have estate tax issue to deal with regarding the funds received from the surviving owners.