July 23, 2020

Types of Buy-Sell Agreements

If you own a business, then you should know about buy-sell agreements. This type of insurance policy is beneficial for protecting your business. It is best to consider all your options when it comes to a buy-sell agreement. We recommend involving your attorney and financial advisor on the matter as well.

With this group of people and Texas Insurance Agency at your side, we can help you determine the best type of buy-sell agreement for your situation. Here at Texas Insurance Agency, we work with a dozen different insurance providers, so you have a wide variety of options. When it comes to buy-sell agreements, you certainly have options.

Entity-Purchase Agreement

This plan allows the business to purchase the owner’s entire interest on an agreed-upon price when a triggering event occurs. This agreement is considered a stock redemption agreement if the business is a corporation and a liquidation in the context of a partnership.

A buy-sell agreement must be funded, and there are a number of ways it can be funded. However, if the entity-purchase agreement is funded by life insurance or disability, then the business becomes the owner and beneficiary of insurance for each stockholder. Upon their death or departure, the business purchases the stocks using the proceeds from the funding.

Business room

If your company has so many stockholders, it is best to choose the trustee’s agreement.

Cross-Purchase Agreement

This type of agreement is the most common and features all co-owners or stockholders purchasing a life insurance policy for each other’s lives. The interest of the deceased or departed’s stocks is handed off to their family, and the co-owners or stockholders are paid benefits.

If there are a large number of stockholders, then it may be easier to use a “trustees” agreement. This is when a trust owns one policy for each stockholder. They use this account to distribute the deceased’s stock.

Choose the Right Agreement

The descriptions of the agreements above are only brief descriptions. Here at Texas Insurance Agency, we can inform you of every option at your fingertips. It is also best to consult your attorney and financial advisor, so you are comfortable with your decision.

Contact our Katy office by calling (281) 398-1010. Our agents put you first at every step of the way. Do you have the business insurance you need? Visit our commercial insurance page for information regarding other types of policies.

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