This form is set up as a Buy Sell Agreement between the LLC and a key member. It applies in the case of the death, disability, retirement or offer of member to sell his membership units during his lifetime.
Iowa Buy Sell or Stock Purchase Agreement Covering Membership Units in a Limited Liability Company (LLC) with an Option to Fund the Purchase through Life Insurance
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US-00835BG
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How to fill out Buy Sell Or Stock Purchase Agreement Covering Membership Units In A Limited Liability Company (LLC) With An Option To Fund The Purchase Through Life Insurance?
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FAQ
A buy and sell agreement (buy-sell agreement) is a legal remedy for establishing a clear plan of how to distribute the shares of a departed or deceased partner to the remaining ones. In the case of a death, life insurance policies are used to fund the buyout of shares from the deceased's estate.
The life insurance premiums used to fund a buy-sell agreement are not tax deductible. In a Cross-Purchase Agreement where an individual shareholder purchases life insurance on the life of another shareholder and pays the premium, it is paid for with after-tax dollars.
A life insurance buy-sell agreement requires the business owners to carry life insurance that benefits each other or the business, so that the proceeds of the life insurance policy will be available to pay for the deceased member's ownership interest.
The business pays the premiums and therefore exists as the owner and beneficiary of the policy. When an employee-owner dies, that share of the company passes to the heirs of his or her estate. Then the business can use the policy's death benefit to buy the interest from the estate.
An insured buy-sell agreement will be funded by using a life insurance policy. The death benefit from the life insurance policy is used to buy out the deceased partner's or member's interest in the business. This will allow the remaining partners the opportunity to buy out the heirs of the deceased partner or member.
If you ever need to act on your buy-sell agreement, money will change hands. That means you need a plan for where that money will come from. Sources could include cash, a sinking fund, installment payments or taking a loan.
Along with offering cost savings over a lump sum cash payment, insurance policy funding also helps avoid the interest of a loan. Funding a buy-sell agreement with life insurance can also help make sure the business will have the means to purchase an exiting owner's shares, regardless of timing.