Pub. 9 2019 Issue 2

9 important, a source of funding to make the buy back. The valuation of privately-owned stock is most generally prescribed by the buy-sell agreement. The valuation of a closely-held business is outside the scope of this article, however, buy-sell agreements often utilize customary valuation methods. These might consist of using: a mutually agreed upon price (updated annually in the agreement) representing a fair valuation of the stock or ownership interest; a book value; a multiple earnings valuation; or an appraised valuation. Importantly, the Internal Revenue Service may scrutinize closely-held buy-sell agreements between related parties, such as family members. For this reason, it is important to ensure the buy-sell agreement would measure up against regulatory scrutiny. Another important aspect of the buy-sell agreement is to address the source of funding to make the purchase of the selling owner’s interests. For example, with the death of a dealership owner, the preselected mechanism to ensure funding availability might be a life insurance policy purchased by the company. The proceeds are used to purchase the deceased owner’s interest from the deceased owner’s estate. The interest might then be allocated to remaining owners in the business, again depending on the buy-sell agreement provisions. An extra word of caution to consider in planning and preparing the closely-held dealership buy-sell agreement between owners - each of the manufacturers’ sales and service agreements contain varying provisions that could impact an owner’s ability to sell or dispose of his or her ownership interest or stock, including without limitation, notice and financial wherewithal requirements. While there are some protections afforded under the Illinois Motor Vehicle Franchise Act, the manufacturers’ requirements relative to ownership transfers should not be ignored. Dealership buy-sell agreements help provide a road map for the transfer of ownership interests between business owners in certain circumstances, such as, retirement, death, disability or other prescribed occurrence. These agreements can provide stability, certainty and continuity for dealership owners’ and their legacies.  Julie A. Cardosi is Principal of the private firm, Law Office of Julie A. Cardosi, P.C., of Springfield, Illinois. She has practiced law for over 30 years, and represents the business interests of franchised motor vehicle dealers throughout Illinois. Formerly in-house staff legal counsel for the Illinois Automobile Dealers Association, she concentrates her private practice in the areas of dealership mergers and acquisitions, including transfers of ownership and assets, franchise law, commercial real estate transfers, state and federal regulatory compliance matters, and other areas impacting day-to-day dealership operations. She has also served as former Illinois Assistant Attorney General and Deputy Chief of the Consumer Fraud Bureau of the Attorney General’s Office. The material discussed in this article is for general information only and is not intended as legal advice and should not be acted upon as such. Dealers should consult their own private legal counsel for application to their specific circumstances. Formore information, Julie can be reached at jcardosi@autocounsel.com , or at 217-787-9782, ext. 1. Another important aspect of the buy-sell agreement is to address the source of funding to make the purchase of the selling owner’s interests. For example, with the death of a dealership owner, the preselected mechanism to ensure funding availability might be a life insurance policy purchased by the company.