Since the idea of a fixed price buy-sell agreement is appealing and conceptually simple, many companies employ it. The problem is that the parties seldom reset the prices in their fixed price agreements — a major problem in the current environment considering the value of many businesses changed under the new tax law. In this post, we consider the impact of the Tax Cut and Jobs Act on fixed price buy-sell agreements.
The Tax Cuts and Jobs Act of 2017 was signed into law by President Trump on December 22, 2017. President Trump calls the bill the biggest tax cut in American history, and there were substantial reductions in both corporate and personal income tax rates. The tax reduction act will impact C corporations as well as pass-through entities. This post focuses only on C corporations and looks at the marginal impact of the change.
Over the last 35 years or so, I’ve testified, at deposition or trial, about 200 times.
And so, I confess. My 10 “confessions,” though, do not reveal any startling secrets, but they do provide insight into how one (reluctant) expert views the job of expert witnessing after many years in the trenches.
One day a number of years ago, I received a call from an attorney. On that initial call, he told me about a bizarre buy-sell agreement process that was underway. The attorney represented a company. Based on a buy-sell agreement of some age, an option provided by the agreement had been triggered, and one of the companies had the right to acquire the company at its fair market value.
I’ve said many times that, if you are so foolish as to have a fixed price buy-sell agreement, it is necessary to reset the price on a regular basis. What I should have said is that if the price on a fixed-price buy-sell agreement is reset regularly, it is absolutely necessary that it be a price that is appropriate for all shareholders, whether they are future buyers or sellers under their agreements.