I received some instructions from a client to prepare documents to allow one key person to exit. Instead of the other shareholders buying out his interest in the company, they have decided to have the company buy back his shares, which will then be cancelled, with the company paying the purchase price over a period of 5 years.
While that could have adverse capital gains tax implications for the key person, he has been involved long enough that he can obtain capital gains tax concessions. Don’t try this yourself without very good accounting advice!
This sort of thing can be useful to write into shareholder agreements, to cover situation where a key person retires, becomes incapacitated, dies or becomes bankrupt, and often an insurance company can help the company take out death and total and permanent disability insurance to provide funds to the company in the middle of these situations.
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