Partnership / Shareholder Agreements

KNOWLEDGE EXPECTED OF: CFP® Professionals

Highest Knowledge Level: Understanding

Knowledge Levels and Associated Verbs


Awareness
The state of being aware that something exists / to have familiarity with a particular activity or subject
Understanding
To comprehend the general relationship of particulars / to have an expertise with how something works
Application
Ability to put information to use / to use knowledge for relevant, practical purposes
Evaluation
To judge or conclude by utilizing data / a systematic determination of something’s worth or significance
Define
To state exactly the meaning of
Identify
To be aware of / to recognize and correctly name / to locate an appropriate resource
Explain
To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it
Determine
To ascertain / to come to a decision, such as by investigation or reasoning
Compare
To note the similarities and differences between two or more things
Estimate
To determine an approximate value for
Calculate
To find the value using mathematics
Convert
To change from one form or purpose to another
Evaluate
To reach a conclusion or make a through careful study
Interpret
To give the meaning of / to construe or understand / to translate orally

Hold cursor over or click on each term to read its definition.


Additional Knowledge Expected of CFP Professionals
  • Explain the purpose of a partnership or shareholder agreement. 
  • Explain risks associated with failing to have a current partnership or shareholder agreement.  
  • Explain advantages and disadvantages of the approaches to drafting a partnership or shareholder agreement.
    • Self-drafted
    • Drafted by a competent legal professional 
  • Explain areas that a partnership or shareholder agreement may address, such as:
    • Nature of the business
    • Methods of financing the business
    • Ownership structure of the business
    • Methods for transfer of shares (pre-emption rights)
    • Control and management of the business
    • Key roles and responsibilities of parties to the business
    • Dispute resolution mechanisms
    • Deadlock mechanisms
    • Mechanisms for death, disability, divorce, default (insolvency), departure of a partner or shareholder 
    • Business valuation mechanisms 
  • Explain strategies that may be facilitated through the structuring of a corporation’s shares, such as:
    • Income splitting 
    • Estate freeze 
  • Explain the purpose of a buy-sell agreement. 
  • Identify circumstances in which a buy-sell agreement may be suitable, such as:
    • Death of a business owner/key person
    • Disability of a business owner/key person
    • Departure of a business owner/key person
    • Dispute between business owners/key persons 
  • Explain clauses that a buy-sell agreement may contain, such as:
    • Eligible individuals who may purchase a partner’s or shareholder’s interest in the business
    • Triggers that will enact a buyout of a partner’s or shareholder’s interest in the business
    • The price or mechanism that will be used to value a partner’s or shareholder’s interest in the business 
  • Identify parties who may be included in a buy-sell agreement, such as:
    • Shareholder of a corporation
    • Partner in a partnership
    • Key employee
    • Sole proprietor
    • Family of a deceased business owner 
  • Explain benefits and risks that the parties to a buy-sell agreement may experience. 
  • Explain types of buy-sell agreements that may be used in a business, such as: 
    • Cross purchase
    • Entity purchase or redemption 
  • Identify sources of funds that may fund a buy-sell agreement, such as:
    • Life insurance
    • Accumulated savings or personal funds
    • Financing options (promissory note, installment payments)
    • Installment payments
    • Sinking fund 
  • Explain benefits and risks to using each source of funds for a buy-sell agreement.  
  • Explain the tax treatment under each structure of a buy-sell agreement. 
    • To the estate of the deceased
    • To the individual shareholder
    • To the corporation
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