What type of buy/sell agreement involves each owner entering into an agreement with other owners?

The buy/sell agreement identified as a cross purchase involves individual owners entering into agreements directly with each other. This means that when one owner of the business passes away or decides to leave the company, the surviving owners are able to purchase that owner's share directly. This kind of agreement ensures that ownership remains within the existing group of owners, providing a clear and straightforward method for transferring ownership interests.

In a cross purchase arrangement, each owner typically takes out a life insurance policy on the other owners’ lives. This method allows the surviving owners to use the death benefits from these policies to buy out the deceased owner’s share from their heirs or estate. This structure is beneficial because it allows for a smooth transition and maintains control of the business among the existing owners.

The other types of buy/sell agreements mentioned serve different purposes. An entity purchase requires the business entity itself to agree to buy back the ownership interest, while a partnership purchase relates to specific agreements within partnerships, often involving different dynamics compared to a cross purchase. A life insurance trust is not a buy/sell agreement but rather a financial arrangement used to manage and distribute life insurance benefits according to predetermined terms. This distinction highlights why the cross purchase agreement is the correct choice for the scenario posed in the question.