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In a shareholder agreement involving partners, a cross-purchase agreement allows partners to buy each other out, with each owning insurance on the other. For instance, Partner A owns insurance on Partner B and vice versa. In contrast, a stock redemption agreement has the company as the owner and beneficiary of the policies. The primary benefits of a cross-purchase agreement include protection from creditors, as proceeds are not funneled into the company, and a favorable tax benefit known as a "step up in basis" for shares bought post-death. For example, if a business is valued at $10 million and each owner has $5 million, the dynamics change significantly upon an owner's death.
