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BUY/Sell agreement

    • 144 posts
    March 1, 2014 10:09 PM IST

    a)      The owner of a sole proprietorship can ensure the continuation of her business following her death by entering into a buy-sell agreement with an individual who agrees to purchase the business from the owner’s estate.

     

    • Partnership Buy-Sell Agreement:

     

     

    a)      Partners offer plan for the continuation of the business after the death of a partner by

    entering into a buy-sell agreement that sets out the terms under which a deceased partner’s

    interest in the partnership will be purchased.

     

    b)      The purchase of a deceased partner’s share can be accomplished by one of two methods.

                                                                  

     

      i. Cross-Purchase Method: When this method is used, each partner agrees to purchase a

    proportionate share of a deceased partner’s interest in the partnership.

     

      ii. Entity Method: Under this method of buy-sell agreements, the partnership rather than the

    individual partners – agrees to purchase the share of any partner who dies; the partnership also

    agrees to distribute a proportionate share of that ownership interest to each of the surviving

    partners.

     

    • Closely Held Corporation Buy-Sell Agreement:

     

    a)      The owners of a closely held corporation often enter into a buy-sell agreement, which is

    similar to partnership buy-sell agreement just described.

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