There are two problems with using a formula as the sole factor in determining evaluation. First, formulas can quickly become obsolete. A triple turnover multiple may be reasonable when the agreement is designed, but if the multiple used in the sector increases to a double turnover, buying shareholders and/or the company may overpay the shares. Second, it is often difficult to compare tightly managed companies and, therefore, to establish a precise formula based on the results of other companies. The valuation of a company for a purchase/sale agreement involves determining a price acceptable to both parties, both for the buyer and for the seller. Of course, the seller will want to ask as much as possible and the buyer will want to pay as little as possible. But no motivated seller wants to ask enough for a buyer to lose interest, and no motivated buyer wants to offer so little that he loses the deal to another potential buyer who is willing to pay more. A successful business valuation is a middle ground. Possible treatment of the sale in the form of a dividend. The general rule of taxation of stock withdrawal is very different from the rules applicable to the processing of a sale on a cross-purchase contract.

Under a cross-purchase agreement, other shareholders acquire the transferred share and each profit is generally taxed at favourable tax rates. 5. if the authors of the agreement sought professional advice when selecting the formula prize; AMT potential on the receipt of the company`s insurance income. As a general rule, a business is not subject to tax when obtaining life insurance products related to a share withdrawal contract. The main exception of the non-recognition rule is that revenues collected by a C-capital company may be subject to the Alternative Minimum Tax (AMT). Fortunately, TRA `97 limited the level of exposure to AMT by removing the AMT for “small businesses”. Cons of a cross-purchase contract. As a general rule, there are two drawbacks of a cross-purchase contract, although both disadvantages can be mitigated by careful planning. In addition, a repurchase agreement may include a pre-defined valuation clause in the event of a triggering event. Some purchase contracts contain a specified value or formal valuation clauses, while others defer the use of an independent third party, for example. B example of an accountant or a corporate controller, to determine regularly (for example.

B each year) value. The terms of financing and payment of the purchase may also be included in the repurchase agreement. In theory, this type of clause should reduce value conflicts between purchase and sale owners, but this is not always the case in practice. All you need is insurance on the life of each shareholder. When insurance is used to finance the death purchase obligation, a cross-purchase contract generally requires each shareholder to have separate insurance policies on the other owner`s life.