What type of agreement outlines a business continuation plan after a shareholder's death?

What type of agreement outlines a business continuation plan after a shareholder's death?

• A. Stock purchase plan
• B. Buy-sell agreement
• C. Stock redemption plan
• D. Capital retention

Answer: (B)

A buy-sell agreement is a contractual arrangement that outlines the process for how a business will continue after the death of a shareholder. This agreement typically specifies the terms under which the remaining shareholders or the company itself will buy out the deceased shareholder's interest in the business. This mechanism ensures that the surviving shareholders have a clear, agreed-upon process for maintaining ownership control and continuity of the business in the event of a shareholder's death. Incorporating a buy-sell agreement helps to prevent potential disputes among heirs or family members of the deceased shareholder and ensures that the shares remain within the intended group of owners. It lays out the valuation methods for the shares, payment terms, and other critical details that support a smooth transition. This agreement is essential for businesses with multiple owners, as it effectively implements a structured plan for continuation and financial stability after a significant loss.

A buy-sell agreement is a contractual arrangement that outlines the process for how a business will continue after the death of a shareholder. This agreement typically specifies the terms under which the remaining shareholders or the company itself will buy out the deceased shareholder's interest in the business. This mechanism ensures that the surviving shareholders have a clear, agreed-upon process for maintaining ownership control and continuity of the business in the event of a shareholder's death.

Incorporating a buy-sell agreement helps to prevent potential disputes among heirs or family members of the deceased shareholder and ensures that the shares remain within the intended group of owners. It lays out the valuation methods for the shares, payment terms, and other critical details that support a smooth transition. This agreement is essential for businesses with multiple owners, as it effectively implements a structured plan for continuation and financial stability after a significant loss.