Question

An agreement that provides that upon a business owner's death, surviving owners will purchase the deceased's interest, often with funds from life insurance policies owned by each principal on the lives of all other principals is the:

a) Buy-sell agreement
b) Cross-purchase agreement
c) Deferred compensation agreement
d) Key person insurance agreement

Answer 1

A buy-sell agreement is an agreement that provides for the purchase of a deceased owner's interest in a business. It can be funded by life insurance policies owned by the principals. The correct option is A.

Step-by-step explanation:

The agreement described in the question is known as a buy-sell agreement. This agreement is typically used in businesses with multiple owners to establish a plan for the transfer of ownership in the event of a business owner's death or departure.

In a buy-sell agreement, surviving owners agree to purchase the deceased owner's interest in the business. Life insurance policies owned by each principal can be used to provide the necessary funds for the purchase.

For example, if there are three owners in a business and one owner dies, the buy-sell agreement can stipulate that the surviving owners will use the life insurance proceeds to buy out the deceased owner's share of the business.