This type of agreement is designed to protect the interests of all parties involved, ensuring that the business continues to operate smoothly in the event of a triggering event.
Buy-sell agreements often include life insurance policies as a mechanism to provide the necessary funds to purchase the deceased’s share from their estate.
A buy-sell agreement can be triggered automatically by a particular event, such as death, or be structured to allow the remaining owners to buy out the departing owner’s interest at any point.
In a cross-purchase agreement, each owner agrees to purchase a portion of the departing owner’s interest in the business. It is typically used in small businesses that have a few, closely related owners.
In contrast, entity-purchase agreements involve the business entity itself buying out the interest of the departing owner. This agreement is commonly used in larger businesses, such as corporations, with more stakeholders.
Importantly, it ensures that the business continues to operate in a seamless and efficient manner, without interruption.
If you have questions about buy-sell agreements or want to set up one, contact our experts at Uniserv Insurance Services today.
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