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Buy-Sell Strategy for Businesses with Multiple Owners

Buy-Sell Strategy for Businesses with Multiple Owners



A buy-sell agreement is a contract that provides for the future sale of a business interest, typically between the existing owners of the business.  In an entity purchase buy-sell agreement, the business purchases life insurance policies on the lives of each of the co-owners.  The business pays the annual premiums and is the owner and beneficiary of the policies. Because the business owns the policies, the policy cash values can be shown as an asset on its books.

When one owner dies, the business uses the life insurance proceeds to purchase the business interest from the deceased owner’s estate, thus giving each surviving owner a larger share of the business.

Benefits of this strategy:

  • Easy to administer – Only one policy per person needs to be purchased.
  • Equalization of payments – Since the business pays the insurance premiums, each owner, in essence, pays the same amount for each policy.
  • Cash value is a business asset – The policy’s cash value will show up on the business’ balance sheet as an asset.

Considerations to keep in mind:

  • The policies and cash value are subject to creditors of the business.
  • Life insurance premiums are not tax deductible for the business.
  • The life insurance proceeds may increase the value of the business for estate tax purposes.  This amount may be offset by the business’ obligation to buy the shares.

  • Jessica, Kate, Myra and Emily are all 25% owners in Acme Operations.  Their business has been appraised at $8 million.  They want to establish a buy-sell agreement so that the other owners could continue the business if one of them passes away.
  • Acme Operations buys a $2 million life insurance policy on each owner.  The business owns the policy, pays the premiums and is named beneficiary.


  • Business with multiple owners
  • Wants a way to ensure that the business will continue if one of the owners passes away; wants to keep business ownership among the current owners
  • Wants to keep the administration of the buy-sell agreement easy, despite having multiple owners
  • Would like additional business assets on the books

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.

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IU-112891 (03/2016)

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