Cross-purchase agreement is a buy-sell arrangement in which individual business owners agree to purchase the departing ownerTMs interest directly from that owner or their estate upon death, disability, or another triggering event. Each owner typically holds life and disability buyout insurance on the others to fund their obligations. Cross-purchase designs can provide surviving owners with an increased basis in acquired shares but may become administratively complex when there are many owners, because each must own and maintain policies on every other owner.

Advisors recommend cross-purchase agreements for closely held businesses with a small number of owners where step-up-in-basis benefits are attractive. They help design the agreement with attorneys, determine appropriate valuations, and arrange life and disability buyout coverage on each owner. Premium flows and policy ownership must match the agreement structure to avoid transfer-for-value issues. Understanding cross-purchase agreements enables advisors to explain tradeoffs versus entity-purchase designs and to support business-continuation planning that aligns tax and control objectives.