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Buy-sell agreement

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Buy-sell agreements

Buy-sell agreements are legally binding agreements that stipulate how an owner’s

share of a business is appropriated or reassigned upon the death or occurrence of some

specified events like incapacitation. Such agreements could require that the available shares

of the deceased be sold to the remaining partners or the partnership ("Buy-Sell Agreements,"

2021). Several types of buy-sell agreement and are characterized as below.

The first of the types of buy-sell agreements is the Entity-Purchase agreement. It can

be distinguished by the fact that it is an agreement between the business and its owners.

Another distinguishing feature of this type of agreement is that the sole purchaser is the

business entity with the aid of insurance as the funding entity.

A cross-purchase agreement is yet another form of the buy-sell agreement, and it is

different from the rest in that it is an agreement between the business owners themselves. The

primary source of funding for this type of purchase is the individuals so that they may acquire

the shares of the departing member ("Buy-Sell Agreements," 2021). As such, every owner

funds the agreement with each of the other members, which further distinguishes it from the

rest.

The other type of agreement is the wait-and-see agreement, and this type is defined by

the fact that the entity or the owner, even both of the mentioned parties, can purchase the

shares or rather than the interest of the leaving partner. It is thus differentiated from the rest

by its hybrid nature. Similar to this type of agreement, the buyer of the business interest is not

identified in the contract.

Among the above types of buy-sell agreements, the most appropriate for a small

business is the cross-purchase agreement. In case a small business lacks the above deal, there
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is the potential loss of direction of the company upon the death of a partner. The reason for

the above observation is that the agreement sets a succession plan that ensures continuity of

the business even after the departure of one of its co-owners through stipulation of how the

shares shall be purchased or hared.

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References

Buy-Sell Agreements. Global Wealth Advisors. (2021). Retrieved 1 December 2021, from

https://www.gwadvisors.net/buy-sell-agreements/.