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Cross Purchase (Crisscross) Buy-Sell Agreement

August 21, 2011

Cross Purchase (Crisscross) Buy-Sell Agreement

 

Definition

A cross purchase agreement is a form of buy-sell agreement between the owners of a closely held business. The parties named in the agreement obligate themselves to buy (or sell) an interest in the business at the occurrence of a specified triggering event. The cross purchase agreement is also referred to as a crisscross. The cross purchase agreement provides at least one buyer for an owner’s business interest and specifies the pricing and payment methods.
Prerequisite

  • You own a business with one or more other owners

Key Strengths

  • Includes all the strengths of a buy-sell agreement
  • Can provide a guaranteed buyer for the business interest
  • Can provide liquidity for payment of estate taxes and settlement expenses (but only if agreement is funded)
  • Can avoid potential conflicts of interest
  • Can establish taxable value of the business, if structured properly
  • Can maintain stability of business operations
  • Can improve creditworthiness of the business
  • Can maintain legal status of your S corporation, partnership, or professional corporation (if relevant)
  • The transaction can’t be considered a dividend, which would be subject to higher tax rates
  • Transaction not subject to attribution rules

Key Tradeoffs

  • Restrictions in the agreement can affect personal estate planning and could limit access to outside credit
  • Agreement becomes complex with more than three or four owners

Variations from State to State

  • Community property laws could have impact in cases of divorce

How Is It Implemented?

  • Requires advance planning and determination of goals for business interest
  • Requires legal and tax assistance
  • Requires coordination with estate planning
  • Requires ongoing, periodic reviews once agreement established

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

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The Retirement Group is a Registered Investment Advisor not affiliated with  FSC Securities and may be reached at www.theretirementgroup.com.

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