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FAS 150

We would like to tell you about some important news regarding certain buy sell agreements that may impact you and your business continuation plans.

Recently, a new accounting standard was issued which affects the financial reporting associated with certain buy-sell agreements. The new accounting standard requires that mandatory stock redemption buy-sells must be carried as a Liability on the corporation’s balance sheet. Entitled “Financial Accounting Standards No. 150” or “FAS 150”, the new accounting standard applies to public corporations, nonpublic corporations and certain partnerships that use Generally Accepted Accounting Principles.

A mandatory stock redemption buy-sell was formerly characterized as equity. However, it will now be reflected as a liability. The new FAS 150 rules will cause the financial statement to appear more burdened with debt, which is a disadvantage if you are attempting to obtain new financing. Additionally, your corporation may have existing debt covenants that the new FAS 150 rule will cause to be violated.

FAS 150 is effective already for public companies. It will take effect for non-public corporations on December 15, 2003. The liability must be reported at its fair market value. However, your corporation can entirely avoid the problem with proper planning.

We would like to meet with you to review and discuss you business continuation plans. If you current arrangement must comply with FAS 150, we have several strategies that will assist in minimizing its adverse effects.