Put and call option mechanism
Put and Call Options vs. A Call Option does not necessarily result in a Sale and Purchase of the Equity.
Call-Put Parity Explained (For Begineers!)They will only exercise their Option, if they have a satisfactory Funding Mechanism. However, it is possible to design a more binding Succession Plan from the Vendor's point of view , if there is a:.
Put and Call Options
This strategy takes away the uncertainty with respect to funding that is a reason for many Call Options not being exercised. If this Strategy is acceptable to all of the parties, it is possible to structure a Succession Plan that consists of a combination of:.
The exercise of an Option by either party would trigger a Sale for the Pre-agreed Sale Price on the pre-agreed Vendor Finance terms. For the above reasons, if the parties want to create certainty for both the Vendor and the Purchasers, then they must effectively pre-agree a Funding Mechanism e.
Click here to read about the use of Put and Call Options in the case of Retirement. The same effect as Put and Call Options can now be achieved by properly drafted " Conditions Precedent ".
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Click here to read about the potential CGT liabilities. This drafting is often not in standard Shareholders Agreements and Partnership Agreements. See more Adviser Tips. Ian Gray travels to most capital cities regularly throughout the year and is available for Meetings.
Please click here to see his availability in Brisbane, Sydney, Melbourne, Adelaide and Perth. Taxation Implications of Policy Ownership. Types of Agreement Cross Ownership: Cross Ownership Self Ownership: Self Ownership Related Party Vendors Deemed Dividends Risks If No Agreement Trust Ownership: Put Options Call Options Put and Call Options Conditions Precedent Put and Call Options vs.
It needs the Purchasers to exercise their Call Option. However, it is possible to design a more binding Succession Plan from the Vendor's point of view , if there is a: Pre-agreed Purchase Price; and Pre-agreed Funding Mechanism such as Vendor Finance.
The pre-agreement of the Price and the Funding Mechanism means that: Combination of Options If this Strategy is acceptable to all of the parties, it is possible to structure a Succession Plan that consists of a combination of: The Need for a Funding Mechanism For the above reasons, if the parties want to create certainty for both the Vendor and the Purchasers, then they must effectively pre-agree a Funding Mechanism e.
If a Funding Mechanism can be agreed in advance , then the Agreement can: The Agreement can provide that the Purchase Price be paid by way of: Retirement Click here to read about the use of Put and Call Options in the case of Retirement.
CGT Issues Both alternatives require careful drafting to avoid CGT liabilities.
JVM(TM) Tool Interface
Adviser Tip "Conditions Precedent" and "Put and Call Options" are just methods of legal drafting that postpone the date of disposal of the Equity in the Business from the date of the Business Succession Agreement to after the date of occurrence of the Insured Event. If correctly drafted, both methods are acceptable to the ATO. See more Adviser Tips Current Marketing Schedule Ian Gray travels to most capital cities regularly throughout the year and is available for Meetings.
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