In an entity purchase buy-sell agreement, who buys the shares from a disabled shareholder?

In an entity purchase buy-sell agreement, the correct answer is that the company itself buys the shares from a disabled shareholder. This type of agreement outlines that in the event of certain triggering events, such as disability, the company will purchase the shares held by a departing or disabled shareholder.

This arrangement is beneficial because it provides a clear and structured method for dealing with the shares, ensuring that the ownership remains within the company. It allows the remaining shareholders and the company to maintain control over who holds the shares, and helps preserve the continuity of the business.

In an entity purchase structure, the company utilizes funds, often from life insurance policies, to purchase the shares, ensuring liquidity and providing financial security to the disabled shareholder or their estate. This setup contrasts with other arrangements where shares might be bought by remaining shareholders individually, which may complicate ownership if the company’s agreements and financing do not accommodate such purchases directly from the company itself.

The focus on the company as the buyer underscores the importance of stability and control in maintaining the business operations amidst changes, such as a shareholder’s disability.