Entity-Purchase Agreement


DEFINITION of 'Entity-Purchase Agreement'

A type of business succession plan that is used by companies that have more than one owner. The plan involves having the company take out an insurance policy on the lives of owners in the amount equal to each owner's interest. In the event of death, the amount collected by the company from the insurance, which is equal to the deceased owners stake, is used to pay the deceased's estate for its share of the business.

BREAKING DOWN 'Entity-Purchase Agreement'

The advantage of this type of succession plan is that the owners know their respective stakes in the company will be paid out to their estates, and that the company will continue to be run by the other partners. Having this type of succession plan, (which is paid for by the company) allows the owners to avoid any out-of-pocket expenses while also looking after their families in the event of death.

  1. Succession

    The action of one party, person or product being replaced by ...
  2. Estate Planning

    The collection of preparation tasks that serve to manage an individual's ...
  3. Heir

    HeirA person who inherits some or all of the estate of another ...
  4. Premium

    1. The total cost of an option. 2. The difference between the ...
  5. Insurance

    A contract (policy) in which an individual or entity receives ...
  6. Indemnity

    Indemnity is compensation for damages or loss. Indemnity in the ...
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