A purchase/sale agreement is a contract between members of an LLC that provides for the sale (or offer to sell) of a member`s interest in the business to other members or to the LLC in the event of a particular event or event. Common events that trigger a buy-and-sell agreement are death, disability, retirement and divorce. The sale price is determined using a valuation method specified in the agreement. The usual valuation methods include a fixed price, an independent valuation, a formula such as a profit multiple or book value. Cons of a cross-purchase contract. As a general rule, there are two drawbacks of a cross-purchase contract, although both disadvantages can be mitigated by careful planning. Second, the formula for determining the purchase price of interest subject to a purchase-sale contract must be fair. Courts generally assess fairness from the date the agreement is executed, not the date of a fraudster`s death. Courts generally believe that the independent parties to a buy-and-sell agreement will negotiate a fair formula.

However, agreements between relatives (parents and children in a family business) are subject to special review; the estate of a deceased shareholder may be compelled to prove that the price of the formula does not result in an amount less than what would be agreed by persons with unfavourable interests who act on the final length. In Lauder and True, the Tribunal disregarded the book value set in purchase-sale agreements between parties associated with the purposes of assessing inheritance tax. It is clear from the terms of the agreement that both policies were taken up by the survivor. The purpose of this policy was to allow the survivor, after the death of the deceased, to acquire the deceased`s shares in both companies. The premiums for these policies were paid or borne by the survivor, i.e. they were not paid or borne by the deceased. AMT potential on the receipt of the company`s insurance income. As a general rule, a business is not subject to tax when obtaining life insurance products related to a share withdrawal contract. The main exception of the non-recognition rule is that revenues collected by a C-capital company may be subject to the Alternative Minimum Tax (AMT). Fortunately, TRA `97 limited the level of exposure to AMT by removing the AMT for “small businesses”. 6.