Book value is an accounting concept and not a measure of economic or financial value; (i.e., the book value of a company`s equity (i.e., the total balance sheet decreased from its total liabilities). The advantage of using book value is that it is a simple method that determines value by looking at a company`s balance sheet. Normally, this balance sheet is compiled by an accountant, but many SMEs only have tax returns for their financial statements and do not have a formal review or even audit. Therefore, purchase-sale contracts with tax returns and book value can enter into a value using accounting information that has not been established in accordance with GAAP. In one way or another, book values are often unrelated to the economic market value of a business. Maintaining the status of corporation tax. In an S company, the admission of shares belonging to false types of shareholders may jeopardize group S status. An effective sales contract can ensure that these shares are not purchased by a defiled shareholder. Where shares can be transferred to a trust, the fiduciary instrument should normally be checked to determine whether the terms comply with Company S`s requirements. In the context of a sales contract, there are two main types of agreements: liquidity for the estate. There is no market ready for closely represented business interests. A purchase-sale contract can provide much-needed cash for the estate of a deceased owner.
What makes this liquidity even more secure is the financing of the obligation to buy back by life insurance. For many reasons, owners can maintain their interest in the business through a variety of legal entities, such as a family trustee or other business. It is important that the repurchase agreement is able to function as intended, regardless of how commercial ownership is structured. Purchase and sale agreements are intended to help partners deal with potentially difficult situations in order to protect the business and their personal and family interests. As noted above, a sales contract may effectively prevent the business from being bound in the personal bankruptcy proceedings of one or more owners. Under the terms of a purchase-sale agreement, an owner may be required to notify other owners before seeking insolvency protection. The business or other owners may then exercise a right to purchase the interest of the insolvent owner. The buy-out funds will appease the trustee of the bankruptcy and the transaction will operate without interruption. Premiums paid on life insurance used to finance a purchase-sale contract are not deductible for income tax purposes. But if you have the right planning, you can use it to your advantage.
For example, financing a repurchase obligation through a C-capital company in a lower tax bracket than the owner could result in a lower overall tax burden. Evaluation discounts. Often, when planning for the estate, the value of minority stakes in a business is “rebalanced” to reflect the fact that an uninterested third party would probably pay not as much for a minority stake in a business as for a dominant interest. Because what does a buyer really say in the direction? Since an acquired interest is subject to the transfer restrictions set out in the purchase-sale contract, the purchase price of the minority interest would benefit from an additional impairment. So, of course, there`s a trigger event. If z.B. an owner dies unexpectedly and there is no up-to-date value certificate, the surviving owners (depending on the sale agreement) must repurchase the interest of the deceased owner, which requires an assessment.