Stock Transfer and Succession Planning


The most effective way to make key employees more bankable is by selling or providing them with bonus of common stock. If done far enough in advance the company’s earnings are used to pay off the stock purchase loan, making the employee debt-free by the time of the change of control. This ownership, combined with the shares they will purchase during the change of control, may generate enough cash flow to service the debt and meet bank covenants. Typically, the stock is sold with a buyback agreement that allows the shares to be returned to the company or the owner if the employee dies or becomes disabled.


HI, this is Byron. I want to talk to you

today about common stock and exit


We find common stock that’s sold or

bonus to key employees is by far the

most effective way to help the key

employees become bankable. The reason it

works so well for them is that we’re

using the earnings from the company to

pay off the shares that are sold. And

then, by the time the change of control

occurs, the key employee has ownership

that is debt free. And then, when added to

the ownership that they would be

purchasing in the change of control,

perhaps there’s sufficient cash flow

coming off those two crunches of

ownership that it can service the debt

and meet the bank covenants. So, typically,

when we sell stock, we sell it with a buy

back agreement, which would be:

providing that if the key employees

should die, or become disabled to terminate,

the shares come back to either the

company or the owner who sold them to


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