A redemption agreement is a type of business succession contract in which a company agrees to buy back (redeem) the ownership interest of a departing, disabled, or deceased owner. In closely held corporations, LLCs, or partnerships, the entity itself becomes the purchaser of an owner's shares rather than the remaining owners doing so personally. Life insurance is frequently used to fund redemption agreements at death, with the business owning and being beneficiary of policies on each owner. The agreement specifies triggering events, valuation methods, payment terms, and tax consequences. Properly structured redemption agreements help ensure continuity of control, liquidity for heirs, and clarity about the value of an ownership stake.

In practice, advisors and attorneys compare redemption agreements with cross-purchase agreements when designing buy-sell plans for business owners. They evaluate issues such as number of owners, desired control outcomes, funding efficiency, and step-up in basis. Life insurance funding is modeled to match projected business values, and policies are periodically reviewed to ensure coverage keeps pace with growth. When a triggering event occurs, the redemption agreement guides the transaction: the company receives insurance proceeds, redeems the departing owner's interest, and reallocates ownership among remaining stakeholders. Advisors who understand redemption agreements can coordinate legal, tax, and insurance pieces to create a cohesive succession strategy.