{"ok":true,"canonical_url":"https://dealroom.so/sba-7a/questions/what-are-the-key-distinctions-between-cross-purchase-and-entity-purchase-buy-sell-agreemen","api_url":"https://dealroom.so/api/public/questions/what-are-the-key-distinctions-between-cross-purchase-and-entity-purchase-buy-sell-agreemen","question":"What are the key distinctions between cross-purchase and entity-purchase buy-sell agreements?","topic":"Business life insurance & protection","audience":"borrower","bot_mode":"buyer","short_answer":"In a cross-purchase agreement, owners buy policies on each other and purchase the deceased's shares, while in an entity-purchase (redemption) agreement, the business buys policies on owners and redeems the deceased's shares.","rule":"Cross-purchase agreements involve each owner buying a policy on every other owner, becoming the beneficiary. Upon death, the surviving owners use the death benefit to buy the shares directly. Entity-purchase agreements have the business itself buy policies on each owner, and the business uses the death benefit to buy back the deceased owner's shares, reducing the outstanding shares.","example":"Cross-purchase: Partner A buys a policy on B, B buys on A. Entity-purchase: The company buys policies on A and B. If A dies, the company uses the payout to buy A's shares from A's estate.","what_lenders_check":"Lenders are primarily concerned that the buy-sell agreement is properly funded and executed to ensure stable ownership and management, regardless of the chosen structure.","required_facts":["Cross-purchase: owner to owner","Entity-purchase: company to owner","Tax implications vary","Number of policies differs","Ownership transfer method"],"source_families":[],"official_sources":[],"related_questions":[{"question":"What is key-person life insurance and why is it crucial for small businesses?","url":"https://dealroom.so/sba-7a/questions/what-is-key-person-life-insurance-and-why-is-it-crucial-for-small-businesses"},{"question":"Who should a business identify and insure as a key person?","url":"https://dealroom.so/sba-7a/questions/who-should-a-business-identify-and-insure-as-a-key-person"},{"question":"What is the typical amount of key-person life insurance coverage needed?","url":"https://dealroom.so/sba-7a/questions/what-is-the-typical-amount-of-key-person-life-insurance-coverage-needed"},{"question":"Who owns and is the beneficiary of a key-person life insurance policy?","url":"https://dealroom.so/sba-7a/questions/who-owns-and-is-the-beneficiary-of-a-key-person-life-insurance-policy"},{"question":"What are the tax implications of key-person life insurance premiums and benefits?","url":"https://dealroom.so/sba-7a/questions/what-are-the-tax-implications-of-key-person-life-insurance-premiums-and-benefits"},{"question":"Why would a buyer require life insurance on a seller during business acquisition?","url":"https://dealroom.so/sba-7a/questions/why-would-a-buyer-require-life-insurance-on-a-seller-during-business-acquisition"}],"related_terms":[{"term":"Buy-Sell Agreement","url":"https://dealroom.so/glossary/buy-sell-agreement"},{"term":"Business Entity","url":"https://dealroom.so/glossary/business-entity"},{"term":"Cross-Collateralization","url":"https://dealroom.so/glossary/cross-collateralization"},{"term":"Business Entity Structure","url":"https://dealroom.so/glossary/business-entity-structure"},{"term":"New Business Entity","url":"https://dealroom.so/glossary/new-business-entity"},{"term":"Alienate the Business","url":"https://dealroom.so/glossary/alienate-the-business"}],"related_tools":[{"name":"Life insurance coverage estimator","url":"https://dealroom.so/seller-life-insurance#ins-estimator"},{"name":"Request insurance quotes","url":"https://dealroom.so/seller-life-insurance#ins-quote"}],"data_freshness":{"last_reviewed":"2026-06-15","sba_rule_sources_checked_through":"2026-06-15"},"citation":{"label":"DealRoom.so SBA 7(a) Q&A","url":"https://dealroom.so/sba-7a/questions/what-are-the-key-distinctions-between-cross-purchase-and-entity-purchase-buy-sell-agreemen","source_type":"DealRoom Q&A"},"caveats":["Grounded in the current SBA rulebook; verify against official sources before relying on it for a live deal.","Not legal, tax, or financial advice and not an approval decision."]}