The shareholders enter into a binding agreement with the corporation for the purchase and sale of their respective interests in the corporation. This agreement obligates the corporation to buy, and the departing shareholder to sell, a shareholder's shares at an agreed upon or determinable price.

The corporation purchases a life insurance policy on the life of each shareholder with a death benefit equal to the value of each shareholder's respective interest. The corporation is the owner and beneficiary of the policies.

Upon a shareholder's death, the corporation receives life insurance proceeds with which it purchases the decedent's stock.

At the shareholder's death, the shareholder's stock becomes part of the shareholder's estate. The estate then sells that stock to the corporation in return for cash generated by the corporation's life insurance policy.

The surviving shareholders have no purchase obligation under the redemption agreement. Nevertheless, the redemption will give the survivors an increase in their proportionate share of the outstanding stock.

  A redemption agreement provides that the corporation will purchase the interest of a departing shareholder upon the occurance of a triggering event. The shareholders enter into a binding agreement with the corporation for the purchase of the shareholders' business interests. This agreement obligates the shareholders and their estates to sell, and the corporation to buy, the shares of a departing shareholder at an agreed-upon o determinable price. In the redemption agreement, only the corporation is obligated to purchase shares.

  The corporation obtains life insurance on each shareholder's life equal to the value of that shareholder's interest in the corporation, naming itself both owner and beneficiary of the policies. Corporate premium payments are non-deductible expenses. Upon a shareholder's death, the corporation receives the policy proceeds generally income tax-free. The shareholder's estate then sells, pursuant to the buy-sell agreement, the decendent-shareholder's entire stock interest to the corporation in return for cash generated by the life insurance policy.

Simplicity. The stock redemption is uncomplicated and simple to effectuate.

One Life Insurance Policy Per Shareholder. The plan requires only one life insurance policy for each shareholder.

Corporate Premiums. The corporation pays the policy premiums, thereby imposing no direct burden on the shareholders.

Insurance as Asset. The cash value of life insurance policies are carried as assets on the corporation's balance sheet without concerns of excess accumulated earnings, assuming the cash values do not exceed the reasonable needs of the business.

Access to Cash Value. At the termination of the buy-sell agreement, the corporation may access cash values in policies for other purposes, such as to fund deferred compensation obligations.

No Step-Up in Basis. Depending on the corporate structure, the surviving shareholder's basis in the corporation may remain the same, although the value of their business interests increases.

Corporate Creditors. Corporate creditors can make claims against cash values of corporate owned life insurance, possibly depleting buy-sell funding.

Alternative Minimum Tax. Life insurance cash values and death benefits may result in corporate alternative minimum tax.

Tax-Bracket Leveraging. Nondeductible premium payments are more costly if the corporation is in a higher tax bracket than the shareholders.

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