Final answer:
The type of business plan where partners agree to buy the interest of the deceased partner is known as a cross purchase agreement. This agreement is often funded by life insurance and is crucial for the continuation of the business without the need for asset liquidation.
Step-by-step explanation:
In a business partnership, the partners can agree to a buy-sell agreement that is typically funded by a life insurance policy, known as a cross purchase agreement. This is where the surviving partners agree to buy the interest of the deceased partner, ensuring that the business can continue smoothly without having to liquidate assets to pay out the share of the deceased. The terms of the cross purchase agreement are determined at the outset of the business relationship, and life insurance is often used to fund the purchase of the deceased partner's interest, which answers how and when the company obtains money from its sale.
When considering business structures like sole proprietorships, partnerships, corporations, S corporations, or Limited Liability Companies (LLCs), one should keep in mind how profits will be shared and taxes allocated. The importance of structuring these agreements in advance cannot be overstated as it directly relates to the continuity and financial stability of the business after the loss of a partner.