The Wait & See Buy-Sell Agreement allows shareholders to postpone the choice between a Stock Redemption and a Cross-Purchase Buy-Sell until the departure of a partner / owner / shareholder.
This requires that both the corporation and the shareholders agree to purchase the stock of a departing shareholder pursuant to the terms and conditions of the Buy-Sell Agreement.
Typically, the Buy-Sell Agreement will secure a first right of refusal for the corporation, and the second option to purchase for the shareholders. The corporation must redeem any shares not purchased through the exercise of these options.
By structuring this plan with shareholder-owned life insurance, the parties ensure that at each death a buyout obligation will be funded.
How It Works
In order to fund their purchase obligations, each shareholder obtains life insurance on the other shareholders, typically equal to their pro rata share of the insured's stock interest.
Upon the death of a shareholder, the surviving shareholders receive the proceeds of their policies on the decedent. First, the corporation may exercise its option to purchase any or all of the decedent's interest. Next, the surviving shareholders may exercise their option to purchase pro rata any or all of those shares not redeemed by the corporation.
The corporation must then redeem any remaining shares. Any corporate redemption is usually funded with capital contributed by the surviving shareholders from the insurance proceeds.
Action To Take
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Fielder Financial Management, LTD.
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Fielder Financial Management, Ltd. not affiliated with Girard Securities, Inc. Mark Fielder, OSJ, Registered Principal. CA. Insurance Lic. # 0690576.