How to Use a Redemption Agreement to Transfer Ownership
Jul 27, 2010
From Legacy Moment eNewsletter (07/23/2010)
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Here’s an example of how an owner can transfer full ownership of the farm to an active child by using a redemption provision included in a buy-sell agreement:
Jack owns 100% of Tri State Angus (TSA), a C corporation. Fred, his son, is the manager at one location, and Laura, his daughter, is not active in the enterprise.
As part of a business succession plan, Jack gifts 10% of TSA to Fred, then drafts a buy-sell agreement that includes a redemption provision which triggers at the death of either shareholder. The provision states that the corporation will redeem the deceased partner’s shares in case of death.
Upon the death of either owner, the corporation will buy the interest of the deceased, thereby causing the remaining person to own 100% of the company stock.
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