cross-purchase agreement

Definition

Contract among partners or stockholders (shareholders) to purchase shares belonging to an incapacitated or deceased partner. These shares are distributed among the survivors either in proportion to their current shareholdings or according to a specified formula. Cross-purchase agreement is entered into before anyone knows who will be the seller or buyer(s). To fund the purchase price of the shares, usually each partner takes a life insurance policy on the other partners with himself or herself as the beneficiary. Also called buy and sell agreement.