Cross Purchase Agreement Form

Buy-Sell Stockholders` Agreement: Cross-Purchase (19 pages) This is a cross-purchase Stockholders agreement between two shareholders and their company. The agreement obliges each shareholder to acquire the stock of the other in the company in the event of death or disability. In addition, there is a provision that a shareholder who wishes to sell his shares must grant the other shareholder a reserve right to honour a good faith offer (Article IV). This agreement should be distinguished from a business purchase agreement in which the company is itself, not the shareholders, in the event of the death or interference of the purchasers. This agreement makes events of death and disability mandatory buying and selling events. In some agreements, the purchase is made optional if these events occur. The duration of the disability is twelve months of permanent disability. This situation may be changed depending on the contracting parties. This agreement provides for the annual execution of a certificate of value to determine the value of the stock. Other solutions may be a formula price or an evaluation.

This agreement requires the application of insurance coverage to the extent of the purchase price, since the buyer has the right to retain a deductible. This agreement provides for the possibility of different purchase prices for the events of death and disability and involves a longer-term payment of a debt to conclude the purchase of disability as opposed to a purchase of death. (Article VIII). The terms of the contract protect the possibility of an S choice by the company. Cross-purchase is generally considered a tax benefit as a business purchase, especially in the case of a C capital company in which life insurance may be involved. Obtaining income from life insurance may be another minimum tax preference for a Company C, whereas it would not be for an S company, a partnership, an LLC taxed as a partnership or an individual. In addition, there is a more favourable income tax base for the purchaser for his remaining shares in the company when a cross-purchase contract is used, because the acquired shares increase the purchaser`s base – this is not the case if the company is the purchaser of the deceased or deactivated shareholder`s shares. While some of these partners are much younger than older ones, they are penalized by higher premiums for their policies. One solution to a problem of too many partners is the consolidation of an agreement under a single agent that would have a policy for each partner, would collect revenue when the time came, and then distribute the shares to surviving partners. The third major trigger for a cross-purchase contract is a partner`s retirement, while broader agreements contain a partner`s divorce clauses (to develop the legal language of the ex-spouse) or personal bankruptcy situations.

Some cross-purchase agreements have a predetermined purchase price that needs to be updated regularly, while others use an evaluation formula or require the hiring of an independent expert.