What characterizes a cross-purchase buy-sell agreement?

A cross-purchase buy-sell agreement is designed to facilitate the transfer of ownership in a business upon the death of one of the partners. In this type of arrangement, each partner owns a policy on the life of every other partner. This means that when one partner passes away, the surviving partners can buy the deceased partner's share of the business using the life insurance proceeds, ensuring a smooth transition of ownership.

Choosing the correct answer reflects the fundamental nature of a cross-purchase agreement, where partners have both ownership (they own the policy) and beneficiary rights (they receive the death benefit) concerning each other's lives. This setup provides each partner with the financial means to buy the deceased partner's interest in the business, maintaining the continuity and stability of the partnership.

The incorrect options emphasize different structures or elements not applicable to a cross-purchase agreement, such as single ownership of insurance policies or a requirement that all partners must individually purchase policies on their own lives rather than on each other's. These distinctions clarify how cross-purchase agreements operate within the framework of business succession planning.