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Notes Online Home 2012 Practice One-Offs Buy-Sell agreements: A crucial planning tool!
Business taxpayers should consider drawing up a business succession plan (BSP) that specifically sets out a pre-determined plan that must be adhered to in the event a business owner dies or unexpectedly retires. It is becoming increasingly common for such a plan to include a ‘buy/sell agreement’ (‘BSA’).
A BSA is basically an agreement entered into by the business owners for the transfer of their respective interests at some future time. For example, at a basic level a BSA may require that, upon the happening of a ‘trigger event’, such as the death of an owner, the remaining owners of the business may be made to ‘buy out’ the departing owner’s interest for its market value.
The elements of a BSA are discussed in this section of the notes under the following headings:
1. What is a buy-sell agreement?;
2. The CGT implications of entering into a buy-sell agreement;
3. Funding a buy-sell agreement using the ‘self-insurance’ model;
4. Self-insuring through superannuation;
5. Funding a buy-sell agreement using the ‘cross insurance’ model;
6. Funding a buy-sell agreement using an ‘insurance trust’;
7. Summary of the BSA funding alternatives; and
8. Dealing with the transfer of business assets.