Northington Blog

PlanForComfort: Buy-Sell Agreement Case Study





Closely held business owners will, at some time, have to address the issue of transferring ownership of their business for estate planning purposes, retirement planning, and/or providing for continuation of business operations in the event of unexpected health issues and even divorce.


Who Benefits?


Virtually any C Corporation, S Corporation or Partnership that is not fully held by a single owner may benefit from a buy-sell agreement.  This type of contract can help successors deal more effectively with financial and emotional issues that arise when an owner leaves the business by documenting what will happen when an owner dies, becomes disabled, retires, or divorces.




Cross Purchase: the most basic form of buy-sell where the departing owner agrees to sell his or her shares to the remaining owners. Typically , each owners buys life insurance policies on all the other owners to create a source of cash at time of death to buy out the passing owners shares. To plan for liquidity in place of disability, the agreement will be funded with disability policies in addition to life insurance.


Entity Purchase: a type of business succession plan that is used by companies that have more than one owner.  The plan involves having the company take out the insurance on the lives of owners in the amount equal to each owner’s interest.  Used when there are multiple owners that would make cross purchase cost prohibitive. The advantage here is that owners know their respective state in the company and have no out of pocket expenses.


Hypothetical buy-sell agreement structure: Case Study 






This is a hypothetical example for illustration purposes only. Not representative of an actual transaction:


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  For more information about how to fund a buy/sell agreement, contact Northington Investment Group at or 501.993.0167