Cross-Purchase Buy-Sell Agreement Template

What Is the Cross-Purchase Buy-Sell Agreement?

A cross-purchase buy-sell agreement is a contract among business owners that requires surviving owners to purchase a departing owner's interest directly (rather than having the company buy it). Each owner maintains life insurance policies on the other owners to fund death buyouts, with the insurance proceeds going directly to the surviving owners who then purchase the deceased owner's interest.

This structure provides significant tax advantages for surviving owners because they receive a stepped-up basis in the purchased interests, reducing capital gains taxes if they later sell the business. It also controls who can own your company, prevents estates from demanding unreasonable prices, and ensures smooth ownership transitions during challenging times like death or disability.

 

 

Is This Cross-Purchase Buy-Sell Agreement Right for You?

You need this agreement if you're:

• A 2-3 owner business expecting significant growth and value appreciation
• Business partners wanting tax-efficient ownership buyouts with stepped-up basis
• Owners willing to fund buyouts with cross-owned life insurance policies
• Co-owners preventing family members or outsiders from becoming unwanted partners
• Partners structuring retirement, disability, or employment termination buyouts
• Business owners without an entity purchase agreement or succession plan

You definitely need this agreement if:

• An owner dies and survivors lack funds to buy their interest
• Business partners disagree on buyout prices during crisis situations
• An owner's spouse demands unreasonable prices in divorce proceedings
• A disabled or terminated owner refuses to sell their interests
• One owner wants to sell to an outsider competitors want blocked

 

 

Why Thousands Trust Legal GPS Templates

Save Money – Attorney buyout agreements cost $3,000-$8,000. This template costs $35.

Save Time – Receive your customizable template instantly, not after weeks of attorney scheduling.

Look Professional – Attorney-quality language and structure that institutions accept.

Keeps You Out of Court – Comprehensive Triggering Events provisions (death, disability, termination, bankruptcy, divorce) prevent disputes. Detailed Valuation and Purchase Price articles ensure fair buyouts. The Funding Mechanisms section structures life insurance to prevent cash crises.

 

 

 

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Step 3: Fill In the Highlighted Fields

Replace bracketed sections with your business details and preferences. Your attorney-quality agreement is ready.

 

Frequently Asked Questions

Can I use this template multiple times?

Yes. Use it for your initial agreement, then reuse it when ownership changes or when you add new owners who need to join the agreement.

Is this contract legally binding?

Yes, when properly completed and signed by all owners. The agreement creates enforceable obligations for buyouts and restricts transfers to protect remaining owners.

How is a cross-purchase agreement different from an entity purchase agreement?

In a cross-purchase agreement, individual owners buy each other's interests directly and receive a stepped-up tax basis in the purchased interests. In an entity purchase agreement, the company itself buys the departing owner's interest, and surviving owners don't receive the same tax benefit.

How many life insurance policies do I need for a cross-purchase agreement?

Each owner needs a policy on every other owner. Two owners need 2 policies total. Three owners need 6 policies. Four owners need 12 policies. This administrative complexity is why cross-purchase works best with 2-3 owners.

What happens if we don't maintain life insurance as required?

The purchase obligation still exists even without insurance funding. Surviving owners would need to find alternative financing (borrowing, installment payments) to complete the buyout, which is usually much more expensive than maintaining term life insurance.

Can I modify the valuation method after we sign the agreement?

Only with unanimous consent of all owners. The Valuation and Purchase Price article is usually the most negotiated provision because it determines buyout amounts, so changing it requires everyone's agreement.