Cross-Purchase Agreement

DEFINITION of 'Cross-Purchase Agreement'

A document that allows a company's partners or other shareholders to purchase the interest or shares of a partner who is deceased, incapacitated or retiring. A cross-purchase agreement is used in business continuation planning. The document outlines how the shares can be divided or purchased by the remaining partners, such as a proportional distribution according to each partner's stake in the company.

BREAKING DOWN 'Cross-Purchase Agreement'

Because a cross-purchase agreement may result in shares becoming unexpectedly available (e.g. in the event of a partner's death), a partner will likely take out life insurance policies on the other partners and list himself as the beneficiary. If one of the partners dies, the funds from the life insurance policy can be used to buy the deceased's interest. Some cross-purchase agreements use a dollar amount to calculate the buyout price, while others use a formula.

RELATED TERMS
  1. Close Corporation Plan

    A form of business buy-sell agreement. Close Corporation Plans ...
  2. Buy And Sell Agreement

    An approach used by sole proprietorships, partnerships and closed ...
  3. General Partner

    Owners of a partnership who have unlimited liability. A general ...
  4. Limited Partner

    A partner in a partnership whose liability is limited to the ...
  5. Form 1065

    A tax document used to report the profits, losses and deductions ...
  6. Succession Planning

    A strategy for passing each key leadership role within a company ...
Related Articles
  1. Entrepreneurship

    How To Create A Business Succession Plan

    Make sure the business you built continues to thrive long after you've left the helm.
  2. Investing

    What is Carried Interest?

    Carried interest is the percentage of a private equity or a hedge fund’s profits that its general partners receive as compensation.
  3. Options & Futures

    Teaching Your Partner About Household Finances

    This is just one more way to take care of one of the most important people in your life.
  4. Retirement

    Why You Shouldn't Let Your Partner Do The Books

    One person often deals with the finances in a relationship, but being ignorant has a cost.
  5. Entrepreneurship

    Partner Problems

    Knowing these start-up company issues - and how to avoid them - will keep your new business thriving.
  6. Retirement

    Financial Infidelity: Are YOU A Cheater?

    These sneaky financial moves could erode your finances - and your relationship.
  7. Entrepreneurship

    MLPs and Limited Partnerships: How They Differ

    Limited partnerships and master limited partnerships have one difference that makes all the difference.
  8. Budgeting

    Key Questions to Ask Before Moving in Together

    Moving in together is a big step. Here are some key financial questions to ask your partner before you make the move.
  9. Professionals

    Direct Participation Programs (DPPs)

    Series 7 - Equities Section 3: Direct Participation Programs (DPPs)
  10. Investing News

    Partners Group: Investment Manager Highlight (PGHN)

    Get an inside look at some of the key executives and the investment approach of the global private equity investment firm Partners Group.
RELATED FAQS
  1. Which terms should be included in a partnership agreement?

    Understand what specific terms should be included in a business partnership agreement and how each affects the partners in ... Read Answer >>
  2. Can I buy insurance to reduce unlimited liability in a partnership?

    Find out why it is important to safeguard your general partnership in the even that one member becomes disabled, dismembered ... Read Answer >>
  3. What is the difference between a silent partner and a general partner?

    Understand the difference between a person designated as a silent partner and a general partner under the partnership business ... Read Answer >>
  4. What's the difference between limited liability partnership and general partnership?

    Learn the differences between general partnerships and limited liability partnerships; each type has unique traits, benefits ... Read Answer >>
  5. How are business decisions made in a partnership?

    Understand how partners in a business can tackle decision making, and learn the options available for partnerships to develop ... Read Answer >>
  6. What are the liabilities of a silent partner?

    Understand the position of a silent partner in a business, specifically how the liability of a silent partner is limited ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center