Structuring Buy-Sell Agreements in the Partnership Context
This paper will discuss the various aspects of buy-sell agreements in the context of partnerships. The main topics which will be discussed concern the Federal tax ramifications of buy-sell agreements in partnerships; namely, the taxation effects on the partnership, the selling partner, and the purchaser. The characteristics of the different types of buy-sell agreements will be examined in the light of these effects, as well as with regard to the non-tax effects on the parties to the agreements.
The first part of the paper will give a general overview of partnerships and their characteristics. The second part of the paper will discus the taxation of partnership interest transactions. In this part, the differences between the liquidation and sale of partnership interests will be examined, with the particular focus being on the taxation consequences of each. The third part of the paper will evaluate the buy-sell agreement in general, examining some of the considerations which go into drafting buy-sell agreements. Also in this section, the basic differences between cross-purchase and partnership purchase agreements will be discussed. The fourth part of the paper will examine the funding of buy-sell agreements, particularly the use of insurance. The fifth part of the paper will discuss the estate planning involving buy-sell agreements. A subpart will examine the recently enacted tax code provisions concerning estate freezing and the problems these provisions can present when a buy-sell agreement is being drafted. The sixth part of the paper will discuss some general business considerations concerning buy-sell agreements in the light of the possible tax consequences discussed in the earlier parts.
Some Characteristics of Partnerships
General partnership law is governed by state law in the United States. All states except for Louisiana have adopted some form of ...