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Buy-Sell Funding Calculator

Find the right agreement type for your business, then calculate exactly how much coverage each partner needs.

Takes about 5 minutes

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Fair market value of the entire business

This calculator provides a general illustration of buy-sell agreement types and funding needs. Actual requirements depend on your specific agreement terms, state laws, and tax considerations. Consult with your attorney and tax advisor before implementing any buy-sell arrangement.

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Frequently Asked Questions

Common questions about buy-sell agreements and funding.

A buy-sell agreement is a legally binding contract between business co-owners that governs what happens to a business interest when an owner dies, becomes disabled, retires, or wants to leave the business. It establishes who can buy the interest, at what price, and how the purchase will be funded, typically through life insurance.
In a Cross Purchase agreement, the remaining owners personally buy the departing owner's share, giving them a step-up in tax basis. In an Entity Purchase agreement, the business itself buys back the share. Cross Purchase is more tax-efficient but requires more policies (each owner insures every other owner). Entity Purchase is simpler administratively but provides no step-up in basis for corporate shareholders.
A step-up in tax basis increases the buyer's cost basis in the business to the purchase price. This matters because when the buyer eventually sells, they only pay capital gains tax on appreciation above their basis. Without a step-up, they could face significantly higher taxes. Cross Purchase agreements provide a step-up; Entity Purchase agreements for corporations do not.
Yes, but options are limited. Sole proprietors can use a One-Way Buy-Sell agreement where a key employee, family member, or outside buyer agrees to purchase the business. Traditional Cross Purchase and Entity Purchase agreements require multiple owners.
A Wait and See agreement provides maximum flexibility by allowing the decision of who purchases—the business entity or the remaining owners—to be made when the triggering event actually occurs. This hybrid approach lets owners adapt to circumstances but is not available for S-corporations due to shareholder restrictions.
For a Cross Purchase agreement, you need n × (n-1) policies, where n is the number of owners. Two owners need 2 policies (each insures the other). Three owners need 6 policies. Four owners need 12 policies. A Trusteed Cross Purchase can reduce this by having a trust own one policy per owner.
A Section 302 redemption is a corporate stock buyback that qualifies for capital gains treatment under IRS rules instead of being taxed as a dividend. The corporation redeems (buys back) shares from a departing shareholder. Strict requirements must be met, including tests for meaningful reduction in ownership.
A Section 303 redemption is a special corporate stock redemption that provides capital gains treatment for shares redeemed to pay estate taxes and funeral/administrative expenses at an owner's death. It's limited to the amount needed for these expenses and only applies when stock represents a significant portion of the deceased's estate.
S-corporations are often structured with Cross Purchase or Trusteed Cross Purchase agreements, which provide a step-up in basis. Entity Purchase is possible but provides no step-up. Wait and See agreements are generally not suitable for S-corps due to shareholder restrictions that could jeopardize the S election.
Life insurance is the most common funding mechanism. For death events, insurance provides immediate cash. For lifetime events like retirement or disability, agreements may use installment payments, sinking funds, or disability buyout insurance. The business valuation determines how much coverage is needed.
Common triggering events include death of an owner, permanent disability, retirement, voluntary departure, divorce (to prevent ex-spouse ownership), bankruptcy, and loss of professional license (for professional corporations). The agreement specifies which events apply and the procedures for each.
A common best practice is to review buy-sell agreements annually and whenever significant changes occur: business valuation changes substantially, owners are added or removed, ownership percentages change, tax laws change, or personal circumstances change (marriage, divorce, new children). An outdated agreement may not reflect current needs.