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Closely Held Corporations:
Corporate Buy Sell Agreements
A prearranged agreement to retire a
stockholder's interest following death
is vital for the
surviving stockholders of a closely held corporation.
Some of the
problems are:
The stockholders of a closely held corporation are also the
officers of the corporation
Earnings to the stockholders are usually paid in
salaries.
There
usually is no available market for the stock.
Options to the
surviving stockholders are:
Accept an adult heir of the deceased into the actual
management of the firm. An adult
heir would normally contribute little
to the management of the business and might well be a
constant source of disruption in its operation
Pay dividends, approximately equivalent to the salary of the
deceased stockholder, to the heir or heirs without any
participation in management on their part.
Survivors would have the burdens of
management but would be sharing the their profits equally
with heirs who are contributing nothing but capital to the
business.
Accept into active management of the firm outside interests
to whom the stock of the deceased may have been sold.
Associates in a closely held
corporation join forces because they work well together and
each has a certain contribution that, taken together,
produces profitable corporation. In many cases, the
outsiders may well not be acceptable and lead to a
disruption of the business or, in extreme cases, even to
liquidation of the firm. If the outsiders' stock constitutes
a majority interest, the survivors would be at the mercy of
the new owners, who would control such matters as salary
scales and dividend policy
Purchase the stock from the estate of the deceased.
The final
alternative may not be practicable because the survivors may
not be able to raise the cash, agreement to a fair price may
not be possible, or the heirs may refuse to sell.
From the
heirs' viewpoint
They face the possibility of having to dispose of the stock
at a sacrifice price either to the surviving stockholders or
to outsiders, neither of who would normally be inclined to
offer a reasonable price.
They face the threat of receiving no dividends if they
decide to retain the stock.
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The Conclusion-
Life
insurance is the best means of financing a business transfer
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Oklahoma - OK,
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Not all insurance products from all insurance companies are available in
all states.
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