For years you’ve heard us at Abo and Company / Abo Cipolla Financial Forensics tout the critical importance of buy/sell agreements. Such are almost always advisable for closely held businesses with more than one owner. These agreements can (1) prevent unwanted persons from becoming members of the ownership group, (2) provide a market for closely held ownership interests, (3) provide procedures for transferring an interest in the business if the owners have a falling-out, and (4) determine how ownership will be transferred at certain events, such as the owner’s disability, divorce, insolvency, or incapacity.
Buy/sell agreements are sometimes also referred to as business continuation, redemption, or crosspurchase agreements. While they are appropriate for all closely held businesses, whether conducted as corporations, limited liability companies or partnerships, here we are focusing on buy/sell agreements for S corporation shareholders. Some of the issues that are commonly addressed in a buy/sell agreement for S corporation shareholders are as follows.