What are the Three Common Types of Buy-Sell Agreements?
The question arises as who is the appropriate buyer of the selling shareholders shares, there are three common types of Buy-Sell Agreements: (1) Corporate Redemption Agreement, (2) The Cross-Purchase Agreement, and (3) the Hybrid or “Wait-and-See” Agreement. In the Corporate Redemption Agreement, Corporate funds are used to purchase the shares, either directly through current or accumulated earnings, or through the payment of insurance premiums. If insurance is expected to be the funding source, this corporate approach can result in a simpler insurance program than a cross-purchase approach. The Cross-Purchase agreement provides for one or more of the remaining shareholders to purchase the stock of the departing shareholder. Each shareholder must own insurance on the life of every other shareholder. Flexibility can be provided by a hybrid approach. The corporation might have the first option to redeem shares, and if it did not do so, remaining shareholders would then have the option. I
