Buy & Sale Agreements A Buy-Sell Agreement is simply an agreement where each owner binds his or her estate to sell the stock in the business to the surviving owners or to the corporation itself, and all of the owners agree that they or the corporation will buy that interest. The estate must sell, and the survivors must buy. There are no options; both sale and purchase are mandatory. In addition to the promises to buy or sell the business interest, the agreement also establishes the price to be paid for the interest. This price is set by either a definite fixed amount stated in the agreement or a formula included in the agreement by which a definite price can be established. Establishing these basic conditions of the agreement is a relatively routine matter when competent counsel is involved. There is, however, one very important matter to be settled if the agreement is to accomplish its intended purpose: It must be funded. There must be some method of assuring the parties involved that cash will be available when it is needed to finalize the purchase. Without the cash to complete the buy & sale, what is the agreement worth? Funding can be accomplished in a number of ways. But life insurance is the only method of funding which guarantees that the money will be available when needed, no matter what happens, even if death occurs the day after the agreement is executed. Without life insurance, most Buy-Sell Agreements would not be worth the paper they are written on. There is no money to carry out the agreement. By using life insurance to fund the Buy-Sell Agreement, the full purchase price is guaranteed - in cash. Hence, a subsequent reduction in income to the business cannot affect the buy-out. The policy proceeds also provide cash to the decedent's estate for estate settlement costs and needed family income. And the family is out of the business not depending on the success of the business for income. Read about the different methods on funding a buy & sale agreement using the link on the left menu.