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Cash needs
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Yes
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No
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N/A
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1. Did you include all owners, including spouses in community property states, and the business entity?
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2. Are there any provisions conditioning ownership/acquisition based on family relations, or other factors?
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3. Have the spouses agreed to accept the terms of the agreement with regard to community property/marital interest?
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Method of Valuation
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Yes
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No
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N/A
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1. If appraisal:
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a. Are appraiser qualifications specified?
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b. Is the appraiser selection method specified?
Mutual agreement.
Each party selects an appraiser and results are averaged.
Each party selects an appraiser, then the appraisers choose a third appraiser to do the work.
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2. If formula approach:
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a. Is the formula method clearly explained in the agreement?
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b. Using the capitalization method, is it appropriate to add back the owners' salary and benefits?
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c. Does your agreement provide for arbitration to resolve disputes to avoid a costly litigation?
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Triggering Buy-Sell Events
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Yes
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No
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N/A
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1. Bona Fide Third Party Offer
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a. Does the other owner(s) retain first right of refusal?
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b. If a right of refusal exists, can it be partially exercised, or does the selling owner's entire interest have to be acquired?
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c. Must offer and exercise of first rights of refusal be in writing within a specified time limit?
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2. Dissolution Due to Disagreement
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a. Should you include a provision allowing an owner to offer to purchase the interest of another?
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b. If so, should it be conditional, or a push-pull requiring the owner to sell or match the offer and purchase the other owner's interest?
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3. Owner's Death
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a. Does the agreement clearly state that the sale/purchase of an owner's interest is required or optional?
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b. If optional:
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(1) Who holds the option - the company or heirs?
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(2) Does the agreement stipulate a deadline to exercise an option?
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(3) The option is subject to what conditions?
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c. Terms
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(1) Is there a provision for funding options, life insurance, promissory notes, sinking fund, etc.; and does the provision include terms, conditions, and deadlines?
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4. Owner's Disability
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a. Have you adequately defined disability, or are you utilizing a common definition, such as Social Security; or contained in a disability insurance policy?
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b. Does the agreement clearly state that the sale/purchase of an owner's interest is required or optional?
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c. If optional:
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(1) Who holds the option - the company or heirs?
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(2) Does the agreement stipulate a deadline to exercise an option?
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(3) The option is subject to what conditions?
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d. Terms
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(1) Is there a provision for funding options – disability insurance, promissory notes, sinking fund, etc.; and does the provision include terms, conditions and deadlines?
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5. Other Potential Buy/Sell Triggers for Discussion
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a. Termination of employment.
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b. Involuntary disposition (bankruptcy or insolvency of an owner).
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c. Divorce of non-owner spouse.
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Miscellaneous Considerations
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Yes
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No
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N/A
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1. Will the IRS accept the terms/conditions or your buy/sell agreement?
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2. Do your stock certificates reflect ownership/transfer restrictions?
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3. For S Corporation, does the agreement restrict ownership to eligible parties?
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4. Does your agreement contain a provision binding heirs and legal bequests
to the conditions of the agreement?
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5. Does it include a covenant not to compete that applies to any departing owners?
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