A Stock Redemption Agreement provides that the corporation will purchase the interest of a departing partner / owner / shareholder upon the occurrence of a triggering event.
The shareholders enter into a binding agreement with the corporation for the purchase of the shareholders' business interests. This agreement obligates the shareholders and their estates to sell, and the corporation to buy the shares of a departing shareholder at an agreed-upon or determinable price. In the Redemption Agreement, only the corporation is obligated to purchase shares.
The corporation obtains life insurance on each shareholder's life equal to the value of that partner / owner / shareholder interest in the corporation, naming itself both owner and beneficiary of the policies. Corporate premium payments, in this scenario, are non-deductible expenses [I.R.C. section 264(a)(1)].
Upon a shareholder's death, the corporation receives the policy proceeds federally income tax free. The shareholder's estate then sells (pursuant to the Buy-Sell Agreement) the decedent-shareholder's entire stock interest to the corporation in return for cash generated by the life insurance policy.
Action To Take
Click HERE to obtain Business Continuation / Buy-Sell information
For Faster Service Call 1-800-480-7526
Copyright © 1998
Fielder Financial Management, LTD.
All Rights Reserved.
Securities and investment advisory services offered
through Girard Securities, Inc. member FINRA, SIPC.
Fielder Financial Management, Ltd. not affiliated with Girard Securities, Inc. Mark Fielder, OSJ, Registered Principal. CA. Insurance Lic. # 0690576.