Entity-Purchase Agreement

You and your college roommate start a business selling halloween costumes for pets. The business becomes an immense success, but you start to worry. Your business partner is really into base jumping and you're concerned that one day he might jump off a cliff, miss the water and, well...no more partner.

Further complicating the matter: if he died, his share of the business would go to his only living relative, his brother, who has a criminal record for cruelty to animals, which wouldn't sit well with your clientele. Might spell the end for the business.

So, the situation goes like this: you and your business partner own a successful company, but you're afraid that his untimely death would lead to his share falling into the wrong hands. Solution: an entity purchase agreement.

Under the entity purchase deal, your company buys insurance policies on both you and your partner. The amount of the policies match the value of your respective stakes in the company. If one of you dies, the company collects the life insurance and then uses the money to buy out the estate.

That way, your partner's share of the business wouldn't go to his brother. The brother gets a cash payout...the stake in the business stays with the company.

The entity purchase agreement helps the company control its succession. And no one has to get spayed or neutered.