Question

Bob and Tom are partners in a business. If one of them were to die, which of the following would guarantee a market for each of their shares of the business?

- A) Cross-purchase plan
- B) Key person insurance
- C) Stock redemption plan
- D) Entity purchase plan

Answer 1

To guarantee a market for a deceased partner's business shares, a cross-purchase plan or an entity purchase plan would be appropriate, as both are forms of buy-sell agreements.

Step-by-step explanation:

The question relates to ensuring that there is a market for the business shares if one partner dies. Among the options listed, the ones that would guarantee a market for each of their shares of the business are:

• Cross-purchase plan
• Entity purchase plan

Both of these are types of buy-sell agreements. A cross-purchase plan involves the remaining partners agreeing to buy the deceased partner's share of the business. With an entity purchase plan (also known as stock redemption plan), the business entity itself agrees to buy the deceased's shares.

On the other hand, key person insurance is a policy taken by the business to compensate for financial losses that could arise from the death or extended incapacity of an important member of the business, and it doesn't guarantee a market for shares.