The Buy-Sell Agreement (Cross Purchase) is a critical document for Canadian closely-held businesses where shareholders want to maintain control over ownership transitions. It becomes particularly relevant when business owners need to establish clear protocols for share transfers in situations such as retirement, death, disability, or voluntary exit. The agreement specifies that remaining shareholders, rather than the company itself, will purchase the departing shareholder's interests. This structure, governed by Canadian federal and provincial legislation, offers tax advantages and helps maintain the corporation's capital structure. The document typically includes valuation methodologies, payment terms, funding mechanisms (often through life insurance), and specific procedures compliant with Canadian corporate and securities laws. It serves as a risk management tool by preventing unwanted third-party ownership while ensuring fair treatment of departing shareholders.
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1. Parties: Identification of all shareholders/business owners participating in the agreement
2. Background: Context of the agreement, including business details and current ownership structure
3. Definitions: Key terms used throughout the agreement
4. Purchase Obligation: Core obligations of remaining owners to purchase shares upon trigger events
5. Trigger Events: Circumstances that activate the buy-sell provisions (death, disability, retirement, etc.)
6. Purchase Price and Valuation: Methods for determining share value and payment terms
7. Payment Terms: Structure and timing of payments for purchased shares
8. Funding Mechanism: Sources of funding for share purchases, including insurance policies
9. Transfer Restrictions: Limitations on share transfers outside the agreement terms
10. Rights of First Refusal: Process for offering shares to existing owners before external sale
11. Closing Procedures: Steps for completing the share purchase transaction
12. Representations and Warranties: Standard assurances from all parties
13. Governing Law: Applicable jurisdiction and legal framework
14. Dispute Resolution: Process for resolving disagreements
15. General Provisions: Standard boilerplate clauses including amendments, notices, etc.
1. Tag-Along Rights: Used when protecting minority shareholders by allowing them to join in sales to third parties
2. Drag-Along Rights: Include when majority shareholders may need to force minority shareholders to join in a sale
3. Special Purchase Terms for Cause: Added when different terms are needed for termination due to misconduct
4. Family Transfer Exceptions: Include when allowing special provisions for transfers to family members
5. Interim Management: Used when specific provisions are needed for business management during transfer period
6. Non-Competition Provisions: Include when restricting selling shareholders from competing post-sale
7. Special Tax Provisions: Added when specific tax planning structures are implemented
8. Insurance Requirements: Detailed section when life/disability insurance is mandatory
1. Schedule A - Current Ownership: Details of current share ownership and shareholder information
2. Schedule B - Valuation Formula: Specific methodology for calculating share value
3. Schedule C - Insurance Policies: List of insurance policies funding the agreement
4. Schedule D - Purchase Price Allocation: Breakdown of how purchase price will be allocated for tax purposes
5. Appendix 1 - Share Certificate Forms: Templates for share certificates and transfer documentation
6. Appendix 2 - Spousal Consent Forms: Required spousal waivers and consents
7. Appendix 3 - Promissory Note Template: Standard form for installment payments if applicable
8. Appendix 4 - Corporate Resolution: Board approval of the buy-sell agreement
Relevant legal definitions
Clauses
Relevant Industries
Professional Services
Manufacturing
Technology
Retail
Healthcare
Construction
Agriculture
Family Business
Real Estate
Consulting
Distribution
Transportation
Hospitality
Financial Services
Relevant Teams
Legal
Finance
Corporate Governance
Tax
Risk Management
Compliance
Executive Leadership
Board of Directors
Corporate Strategy
Business Development
Relevant Roles
CEO
Business Owner
Managing Director
Corporate Lawyer
Tax Advisor
Chief Financial Officer
Business Development Director
Corporate Secretary
Finance Manager
Risk Manager
Compliance Officer
Board Member
Managing Partner
Shareholder
General Counsel
Financial Controller
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