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Estate Planning, Probate & Business Law Blog

Estate Planning, Probate and Business Law Blog by Valente Law, LLC

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Buy/Sell Questionnaire from Cleveland Business Attorney – What to Consider for Your Buy/Sell Agreement

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Buy/Sell Agreement Cleveland Corporate CounselAs a Cleveland business attorney and corporate counsel in the Cleveland, Ohio area, with my main office in Hudson, Ohio, one of the common questions I get from new Cleveland business law clients who need to prepare a Buy/Sell Agreement is, “what should I consider before we design my succession plan and Buy/Sell Agreement.”  There are many parts to a Buy/Sell Agreement and all related succession planning documents, and it can get very complex.  As Cleveland business attorney and corporate counsel, I always appreciate it when my clients are prepared.  To help make the process as efficient as possible, please review and complete the following corporate buy/sell questionnaire prior to our first meeting.

CORPORATE BUY/SELL QUESTIONNAIRE

 

  • What type of business is this?

 

  • Who manages the business? Are there any non-owners on the management team? Do all of the owners want to participate in management?

 

  • Are there procedures in place to help ensure continuity of management during a transition? Do these procedures take into account key employees that are not owners?

 

  • How do the owners want to address employment issues, such as:
    • Compensation
    • Noncompetition agreements
    • Nondisclosure agreement
    • Nonsolictation agreements
    • Protection of intellectual property and intangible assets

 

  • Do any key employees have stock options, profits interests, or any instrument convertible to equity?

 

  • Are there alternative dispute resolution provisions in place for resolving disputes between the owners?

 

  • Is there a possibility of deadlock (e.g., 50/50 ownership)? How do the owners want to resolve a potential deadlock?

 

  • What are the triggering events for a buyout of an owner’s interest?
    • Death
    • Disability
    • Retirement
    • Termination of employment
    • Sale to a non-owner (right of first refusal)
    • Marital dissolution
    • Deadlock
    • Expulsion of an owner

 

  • If a triggering event occurs, will the buyout be mandatory or optional?

 

  • If a triggering event occurs, how will the value of an interest be determined? By formula? Appraised value?

 

  • Predetermined price? Other method?

 

  • If a triggering event occurs, how will payment be made for the departing owner’s interest? May a promissory note be used to pay over time? What is the down payment, interest rate, and term of the note? Is the note secured or unsecured?

 

  • Will the parties use life insurance to fund the buyout obligation? Who will own the insurance policies? Who will be the beneficiaries?

 

  • What are the tax consequences of the buyout? Are there any gift and estate tax consequences? Will there be any basis step-up? Will receipt be taxable? If so, will it be capital gains or ordinary income?

 

  • Are there any professional licensing considerations to ensure that the equity passes to a qualified owner?

 

  • Do the owners want to restrict the transfer of ownership interests? Are all transfers prohibited unless approved by the other owners? Or are certain transfers (such as to family or to a revocable trust) permitted without owner approval?

 

  • If the business is taxed as an S corporation, do the owners understand the importance of including provisions that restrict the transfer of equity to ensure that the business does not become disqualified from Subchapter S status?

 

  • Do the business owners want to restrict issuing new equity?

 

  • Do the owners want to give preemptive rights when issuing new equity?

 

  • Do the owners want to provide drag-along rights to facilitate a sale of the entire business to a third party?

 

  • Do the owners want to provide tag-along rights to protect minority owners if the majority owner decides to sell to a third party?

 

  • What else should your Cleveland business attorney know?

 

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