A few months ago, we answered the question “What is a Buy-Sell Agreement?” In that blog, we briefly outlined the Three Types of Buy-Sell Agreements: the Cross Purchase Agreement, the Redemption Agreement, and the Hybrid Agreement. Today, we are going to take a more in-depth look at each type of Buy-Sell Agreement.
The Three Types of Buy-Sell Agreements
A Buy-Sell Agreement is a written agreement among the owners of a company in which each owner agrees that upon the occurrence of a trigger event, such as a death or the separation from the business, their shares will be sold to the surviving owner at an agreed upon price. The three types of Buy-Sell Agreements include:
- Cross Purchase Agreement: In this type of Buy-Sell Agreement, the co-owners agree to buy out the exiting or deceased owner’s share at a specified price.
- Redemption Agreement: In this type of Buy-Sell Agreement, the company buys the exiting or deceased owner’s share. The company will typically have a life insurance policy for each owner and use the resulting money to purchase the deceased owner’s share.
- Hybrid Agreement: This type of agreement is a combination of the previous Buy-Sell Agreements, requiring the remaining owners and business to purchase the interest of the departing owner.
If you have questions about Business Law and Transactions, Government Contracting, or Teaming Agreements, please contact Offit Kurman attorney and Chair of the firm’s Business Law and Transactions Practice Group Michael N. Mercurio at firstname.lastname@example.org or 301.575.0332. Mr. Mercurio serves as outside general counsel to clients on matters related to corporate and business law, commercial transactions, government contracting and real estate.
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