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Simple Buy-Sell for Two Business Owners

Simple Buy-Sell for Two Business Owners



A buy-sell agreement is a contract that provides for the future sale of a business interest between business owners.  In a cross purchase buy-sell agreement, each co-owner buys a life insurance policy on the life of the other co-owner, pays the annual premium and is the beneficiary of the policy they own.  While this strategy can be used with more than two owners, it is generally only used with businesses that have two owners. 

When one owner dies, the life insurance benefit received by the surviving owner allows them to buy the business interest from the deceased owner’s estate. 

Benefits of this strategy:

  • The life insurance proceeds will not trigger Corporate Alternative Minimum Tax (AMT), because the policy is owned by an individual, not a C Corporation. 
  • The policies and cash values are not subject to creditors of the business.
  • The surviving shareholder will receive full basis credit for the purchase of the stock.  This will reduce any capital gains tax when the surviving owner eventually sells the business.

Considerations to keep in mind:

  • The owners need to use their own after-tax funds to purchase the life insurance policies.
  • If the owners are different ages or would be rated differently, one may have to pay a disproportionate amount of premiums.
  • The company cannot record the cash value in the policy as a business asset.

  • Joe, age 50, and Bob, age 46, each own 50% of Acme Manufacturing, which has been appraised at $6 million.  They want to establish a buy-sell agreement so that the other owner could continue the business if one passes away.
  • Joe buys a $3 million life insurance policy on Bob.  Joe is the owner of the policy, will make the premium payments and will be the beneficiary.
  • Bob buys a $3 million life insurance policy on Joe.  Bob is the owner of the policy, will make the premium payments and will be the beneficiary.


  • Business with two owners
  • Wants a simple way to ensure that the business will continue if one owner passes away
  • Worried about paying corporate Alternative Minimum Tax (AMT)

Please be advised that this material is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended or written to be used, and cannot be used, by any taxpayer for the purpose or avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transaction(s) or matter(s) addressed and your clients should seek advice based on their particular circumstances from their own tax and legal advisors.

“AXA” is the brand name of AXA Equitable Financial Services, LLC and its family of companies, including AXA Equitable Life Insurance Company (NY, NY), MONY Life Insurance Company of America (AZ stock company, administrative office: Jersey City, NJ), AXA Advisors, LLC and AXA Distributors, LLC. AXA S.A. is a French holding company for a group of international insurance and financial services companies, including AXA Equitable Financial Services, LLC. This brand name change does not change the legal name of any of the AXA Equitable Financial Services, LLC companies. The obligations of AXA Equitable Life Insurance Company and MONY Life Insurance Company of America are backed solely by their claims-paying ability.

Life insurance products are issued by AXA Equitable Life Insurance Company (AXA Equitable) or MONY Life Insurance Company of America (MONY America), an Arizona stock company with its main administrative office in Jersey City, NJ. MONY America is not licensed to conduct business in New York and Puerto Rico. Variable products are co-distributed by affiliates AXA Advisors, LLC and AXA Distributors LLC. Universal and term insurance products are co distributed by AXA network, LLC and AXA Distributors, LLC. AXA Equitable, MONY America, AXA Advisors, , AXA Network and AXA Distributors do not provide tax or legal advice.

© 2016 AXA Equitable Life Insurance Company. All rights reserved.

1290 Avenue of the Americas, New York, NY 10104, (212) 554-1234

IU-112890 (03/2016)

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