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Buysell Canada

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  • pg 1
									                                   BUY-SELL AGREEMENT
                     (HYBRID AGREEMENT - CORPORATE-OWNED INSURANCE)
(for use in Canada, pursuant to the Income Tax Act (Canada))
THIS AGREEMENT made effective as of the _____ day of ______________, _______.

BETWEEN:

                                          (list of shareholders)
                of the __________ of ________________, in the Province of ____________
                (collectively the “Shareholders” and individually as a “Shareholder”)

                                               - and -

                                         [CORPORATION]
                 a/an ___________ corporation incorporated pursuant to the laws of
                              the Province of ____________________
                                       (the “Corporation”)


WHEREAS:

A.     The authorized capital of CORPORATION is divided into _______ common shares, of which
       _____ common shares have been issued and are outstanding as fully paid and non-assessable
       shares in the capital of the Corporation.

B.     The Shareholders are the registered and beneficial owners of the following issued and
       outstanding common shares in the capital of the Corporation:

       (list shareholders and number of shares held by each)

C.     The Shareholders desire to set out in writing their agreement as to the purchase of the shares of a
       Shareholder in the event of the death of that Shareholder.
D.     The Corporation is authorized to redeem, acquire or cancel issued shares of the Corporation
       upon the death of a Shareholder.

NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual covenants
and premises contained in this Agreement, the parties hereby for themselves, their respective heirs,
executors, administrators, successors and assigns agree as follows:

1.     Definitions

1.1    In this Agreement, unless there is something contained within the subject matter or context that
would provide a further definition, the following terms shall be defined as follows:

(a)    “Act” means the [applicable legislation], unless otherwise indicated, as amended and re-enacted
       from time to time;

(b)    “Agreement” means this Agreement including all schedules and exhibits hereto and includes all
       agreements made at any time and from time to time which amend or supplement or restate this
       Agreement or any provision hereof;

(c)    “Capital of the Corporation” means the aggregate of contribution made by the Shareholders in
       the existing Corporation;

(d)    “Immediate Family” means, with respect to an individual Shareholder, the Shareholder’s spouse,
       common law spouse, natural or adopted children, natural grandchildren or a child legally
                                                -2-


        adopted by the natural or adopted child of the Shareholder such that the child is considered a
        grandchild of the Shareholder;

(e)     “Income Tax Act” means the Income Tax Act (Canada), as amended and re-enacted from time to
        time;

(f)     “Insurance Proceeds” means the amount to be received upon the death of a Shareholder as set
        out in Schedule “B” hereto;

(g)     “Party” and “Parties” means a party to this Agreement and shall include any person who
        becomes bound by this Agreement, and any reference to a Party shall include such Party’s
        successors, heirs, executors and permitted assigns;

(h)     “Permitted Transfer” means a transfer of shares including any sale, exchange, transfer, gift,
        transmission or other transaction, by which the legal or beneficial ownership of, or a security
        interest or other interest in, such shares passes from one person to another, or to the same person
        in a different capacity, or to the personal representative of a deceased Shareholder for so long as
        the shares continue to be held by the personal representative of such Shareholder, and “Transfer”
        and “Transferred” and similar expressions have corresponding meanings;

(i)     “Shares” means the common shares of the Corporation;

(j)     “Shareholder” means at any time a person that is or becomes a Party to this Agreement and holds
        one or more Shares and shall include any personal representative of a deceased Shareholder;

(k)     [“Triggering Event” means death, disability, retirement, bankruptcy, disagreement or
        termination of employment of a Shareholder;]

(l)     “Value” means the fair market value of the Shares as determined in accordance with the
        provisions of paragraph [no.] hereof.

2.      Restrictions on Disposition of Shares

2.1     Except as provided under the terms of this Agreement, no Shareholder shall without the prior
written consent of the other Shareholders, sell, assign, transfer, gift, pledge, mortgage, hypothecate,
charge or otherwise transfer or encumber any of the Shares in the Capital of the Corporation now or
hereafter owned by such Shareholder.

2.2     In the case of any Permitted Transfer, no Shareholder shall sell any of his/her Shares unless the
purchaser is already a Party to this Agreement or becomes a Party to this Agreement upon completion of
the Transfer or enters into an agreement with substantially the same terms and conditions.

2.3     Notwithstanding the foregoing, the foregoing restrictions shall not apply to a Transfer of Shares
in the Capital of the Corporation whether during the Shareholder’s life or as a result of his/her
subsequent death to a member of such Shareholder’s Immediate Family, nominees of such Shareholder, a
corporation owned or controlled by such Shareholder or a member of such Shareholder’s Immediate
Family, or any trust which may be established for the benefit of such Shareholder or a member of his/her
Immediate Family, provided that at the time of any such Transfer, any successor shall in writing agree to
be bound by the terms and provisions of this Agreement and further provided that in the event of a
Transfer of Shares to a corporation owned or controlled by a Shareholder or his/her Immediate Family,
the Shareholder shall covenant not to transfer the shares of such transferee corporation except in
accordance with the provisions of this Agreement.

3.      Buy-Sell Provisions on Death of a Shareholder

3.1    Upon the death of any Shareholder (the “Deceased Shareholder”), and prior to any declaration of
dividends by the Corporation, the surviving Shareholder(s) (the “Surviving Shareholders”) shall, within
_____ days of the date of the date of death, provide the personal representative of the Deceased
                                               -3-


Shareholder (the “Personal Representative”) with a calculation of the fair market value of the Deceased
Shareholder’s Shares.

3.2     The Personal Representative shall within _____ days of being notified of the fair market value of
the Deceased Shareholder’s Shares, notify the Surviving Shareholders specifying the number of shares
held by the Deceased Shareholder that are to be purchased by the Surviving Shareholders. Any of the
Deceased Shareholder’s Shares not to be purchased by the Surviving Shareholders shall be redeemed by
the Corporation and such redemption shall be subject to the terms and conditions contained herein.

3.3      The Personal Representative shall be responsible for ensuring that any unclaimed deductions,
exemptions or losses available to the Deceased Shareholder in the year of death and in the first year of the
estate of the Deceased Shareholder (including any available capital gains exemption under section 110.6
of the Income Tax Act) shall be utilized through the sale of the Deceased Shareholder’s Shares to the
Surviving Shareholders, and the remainder of the Shares shall then be redeemed by the Corporation.

3.4      If the Personal Representative determines that the Deceased Shareholder would be entitled to a
capital gain exemption, then each Surviving Shareholder shall, within ______ days of receiving notice
from the Personal Representative of the number of Shares to be purchased, pro rata in proportion to
his/her respective shareholdings, deliver a promissory note to the Personal Representative in an amount
sufficient to pay for such proportionate number of Shares based on the fair market value calculation. Such
promissory note shall be non-interest bearing and shall be due and payable before the expiry of ______
days from the date of its issue. Upon receipt of the promissory note, the Personal Representative shall
cause the subject Shares to be transferred to the surviving Shareholders within a reasonable period of
time.

3.5    The Corporation shall, in a timely manner, arrange to collect all of the life insurance proceeds
payable to the Corporation as a result of the Deceased Shareholder’s death.

3.6     The remaining Shares shall be redeemed by the Corporation, and simultaneously therewith the
Surviving Shareholders shall cause the Corporation to elect that the deemed dividend caused by the
redemption shall be payable out of the Corporation’s capital dividend account as defined by the Income
Tax Act. The Survivors shall within three hundred and sixty (360) days from the date of death of the
Deceased Shareholder, in consultation with the Personal Representative, recommend an election by the
Corporation that will bring about a result such that depending upon the adjusted cost base (“ACB”) and
the paid up capital (“PUC”) of the Shares to be redeemed, a capital dividend of up to twenty-five per cent
(25%) of the lesser of the capital gain arising on the deemed disposition at death and the capital loss
otherwise determined in respect of the subject Shares will be paid out of the Corporation’s capital
dividend account by way of a capital dividend and the balance will be paid out as a taxable dividend.

3.7     If the Personal Representative does not give notice to the Surviving Shareholders of the number
of Shares to be purchased by the Surviving Shareholders and the number of Shares to be redeemed by the
Corporation within the ___-day period as required by paragraph 3.2, the Surviving Shareholders shall
purchase all of the Shares of the Deceased Shareholder in accordance with the terms and conditions set
out in paragraph 3.4.

3.8     When the disposition of the Deceased Shareholder’s Shares has been completed, the Surviving
Shareholders shall cause the Corporation to pay a capital dividend to the Surviving Shareholders to the
extent necessary to permit the full repayment of the promissory notes described in paragraph 3.4. The
Surviving Shareholders shall then use the funds so received to satisfy the debt and the Personal
Representative shall cancel the promissory notes evidencing such debt. In the event the capital dividend
account of the Corporation is insufficient to permit the full repayment of the promissory notes, the
provisions of paragraph [no.] shall govern.



THIS IS A 12-PAGE FORM, including schedules.

								
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