My advice as to the appropriate consideration of embedded capital gains for tax pass-through entities is that appraisers should not tax affect the gains in valuations for buy-sell agreements. You should discuss this issue with your tax advisor and let him or her walk you through examples of what happens to buyers or sellers under varying assumptions about embedded gains.
Booth Computers, a New Jersey family partnership (“Booth”), was created in 1976. In 1978, a related partnership, HCMJ Realty Ltd. was formed, of which Booth was a limited partner. Interests in Booth were given to James, Michael and Claudia Cohen by their father, Robert. The partnership acquired substantial assets over a period of more than […]
In June 2010, I participated in the video interview series “Conversations with the Masters,” hosted by Brien K. Jones of the National Association of Certified Valuation Analysts (NACVA). In the first part of the interview, filmed at the NACVA/IBA Annual Consultants’ Conference in Miami, Brien and I discuss the growing influence of LinkedIn and how […]
The article referenced is good advice. Don’t wait another day to review your buy-sell agreement.
In the June 2011 issue of The CPA Journal magazine is the article “Buy-Sell Agreements: Business Owners Benefit from Planning Ahead” by yours truly. This is a comprehensive article and one I hope you will read.
“Given my experience as an attorney working with business appraisers and reviewing business appraisal reports, and the frustration that sometimes was caused because of the seemingly divergent practices of business appraisers, I sensed the need for a resource for people like me – people who were NOT appraisers but needed to better understand business appraisal theory, appraisal standards, and the issues present in the business appraisal profession.”
Rights of first refusal (ROFRs) are not the same as buy-sell agreements. They may seem to operate like a buy-sell agreement, in that they provide procedures related to possible future stock transactions. But ROFRs do not assure that transactions will occur.
My challenge to readers is to eliminate obvious problems with your buy-sell agreement that can be easily avoided with regard to selection of an appraiser.
There are fewer than 150 words in the Purchase Price Section quoted above. I have written about 2,400 words talking about the nuances in the paragraph. If I can do this while only thinking about it, consider what the parties might do following a trigger event, particularly if the financial stakes are high.
I am not sure that all the parties to the agreement referenced in this post read it carefully. If they had, someone surely would have objected to giving the Corporation the right to acquire the shares of any owner who divorced, even when the shares might not be in danger of being awarded to on out-spouse. This post illustrates the point I have made many times in my book, Buy-Sell Agreements for Closely Held and Family Business Owners, and in this blog. If you have a buy-sell agreement, it is important for you to read it and to understand what it says.
