Using a Buy-Sell Agreement when Selling Your Business to Family

What is a buy-sell agreement?

A buy-sell agreement is a legal contract common in closely held businesses. It is an agreement you can enter into now that provides for the future sale of your business interest. A buy-sell agreement is also referred to as a business continuation agreement, a stock purchase agreement, or a buyout agreement. When carefully drafted, your buy-sell agreement may be used to set the taxable value of your business interest.

Does it matter if your buy-sell agreement is with a family member?

The IRS tends to scrutinize transactions between related parties, so almost any business transaction between you and a family member could be subject to the attention of the IRS. The definition of family member includes your spouse; parents of you and your spouse plus their lineal descendants, including spouses; and any other "natural objects of the transferor's bounty." There are rules in effect that can make the sale of an interest in a family business seem more difficult. However, you can take steps to ensure that your related party buy-sell agreement stands up to an IRS examination.

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