Question

10 mark and riyaz are the two shareholders of a company and each owns 100 shares. they implemented a buy/sell agreement which states if one of them becomes disabled, the disabled owners shares will be purchased by the other partner to gain complete control over the company. mark purchased a disability buyout insurance policy on riyazs life and vice versa to fund the contract. the coverage is equal to the expected value of the shares to be purchased. which of the following methods did mark and riyaz use for funding the buy/sell agreement? a2rvdtiwdytyefledwdycna0ngpudz09
a. key person disability
b. cross purchase
c. entity purchase
d. share redemption

Explanation:

sell agreement funding, the owners (shareholders) of a business purchase insurance policies on each other's lives (or in this case, disability - related coverage) to fund the purchase of the other's shares in case of a triggering event (here, disability). Mark and Riyaz are two shareholders, and each has purchased a disability buyout insurance policy on the other to fund the buy - sell agreement. Key person disability is for insuring a key employee, not shareholders buying each other's shares. Entity purchase involves the business entity buying the shares, not the shareholders. Share redemption is also an entity - related or different structure. So the method used is cross purchase.

Answer:

b. Cross purchase