{"id":3479,"date":"2026-10-20T11:18:51","date_gmt":"2026-10-20T11:18:51","guid":{"rendered":"https:\/\/nrcpas.com\/life-insurance-guides\/buy-sell-agreement-life-insurance\/what-is-the-purpose-of-a-buy-sell-agreement\/"},"modified":"2026-10-29T23:13:15","modified_gmt":"2026-10-29T23:13:15","slug":"what-is-the-purpose-of-a-buy-sell-agreement","status":"publish","type":"page","link":"https:\/\/nrcpas.com\/life-insurance-guides\/buy-sell-agreement-life-insurance\/what-is-the-purpose-of-a-buy-sell-agreement\/","title":{"rendered":"Buy-Sell Agreement Purpose: A Florida Owner’s Guide"},"content":{"rendered":"\n
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Buy-Sell Agreement Insurance | Florida<\/p>

Settle Your Ownership Plan Before It Is Needed<\/h1>

A buy-sell agreement decides who may buy an owner's share, when the sale happens, how the price is set and how the buyer pays. Insurance can help fund that plan. NR CPAs & Business Advisors, a Miami CPA firm, helps Florida owners review both sides.<\/p>

Call us today to schedule a coverage review<\/a><\/div>
Call us today to schedule a coverage review<\/a><\/div><\/div>\n<\/div><\/div>\n\n\n

By Nischay Rawal \u00b7 Published October 20, 2026<\/p>\n\n

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The purpose of a buy-sell agreement is to decide, in advance, what happens to an owner’s share of a business. It names who may buy the share, when the sale happens, how the price is set, and how the buyer pays. It keeps the business running on a plan the owners chose, not on guesswork.<\/p>\n

NR CPAs & Business Advisors is a Miami CPA firm. Insurance questions tied to these agreements are handled by a licensed insurance agent, separately from the accounting practice.<\/p>\n

What a buy-sell agreement is<\/h2>\n

A buy-sell agreement is a contract among business owners. It sets the rules for what happens to an owner’s ownership interest when a set event occurs.<\/p>\n

The agreement can sit inside a larger document. In a Florida LLC, the operating agreement<\/a> governs relations among the members and between the members and the company, except for certain matters the statute says the agreement cannot change. Where that document is silent, the statute fills the gap.<\/p>\n

The U.S. Small Business Administration notes that an operating agreement<\/a> can set buy-sell procedures for transferring an interest or handling an owner’s death. Corporations often use a shareholder agreement, and partnerships use a partnership agreement. Some owners sign a standalone contract.<\/p>\n

The best time to write one is before a crisis. Owners who are still getting along can negotiate terms calmly. Owners facing a death or a dispute usually cannot.<\/p>\n\n

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Not sure what your next step is?<\/h3>

Talk it through with our team — we can walk you through how a situation like yours is usually handled and what your options are.<\/p>

Schedule a coverage review<\/a><\/div>
Schedule a coverage review<\/a><\/div><\/div>\n<\/div>\n

Deciding who buys an owner’s interest, and when<\/h2>\n

The agreement sets who may buy the interest and when the purchase happens. Buyers are usually the remaining owners, the business entity, or both.<\/p>\n

Common triggering events include death, disability, retirement, divorce, bankruptcy, and an owner who chooses to leave. Under Fla. Stat. \u00a7 605.0105(1), except as otherwise provided in subsections (3) and (4), the operating agreement governs relations among the members as members and between the members and the LLC. To the extent the operating agreement does not otherwise provide for a matter described in subsection (1), this chapter governs the matter (Fla. Stat. \u00a7 605.0105<\/a>). Subsection (3) lists things an operating agreement may not do, and several of those items have exceptions stated in the statute, including in subsection (4).<\/p>\n

The agreement also sets the steps and deadlines. That way, no one has to guess what happens next when an owner leaves.<\/p>\n

Setting a price and valuation method<\/h2>\n

The agreement fixes a purchase price or a formula for working out the price. This step cuts down on disputes after an owner dies or leaves.<\/p>\n

Some owners use a fixed price that they review each year. Others use a formula based on agreed financial measures. For a decedent’s interest in a partnership or proprietorship, 26 C.F.R. \u00a7 20.2031-3 treats fair market value as the amount a willing buyer would pay a willing seller, with neither party under any compulsion to buy or sell. Both must have reasonable knowledge of the facts. The valuation looks at business assets, including goodwill, and the business’s earning capacity, as described in 26 CFR 20.2031-3<\/a>.<\/p>\n

An outdated price can be unfair. It can underpay the seller’s family or overcharge the buyer. Review the price alongside the business’s financial statements.<\/p>\n

Keeping ownership out of unwanted hands<\/h2>\n

The agreement keeps an owner’s share from passing to someone the remaining owners did not choose. Transfer restrictions do this work.<\/p>\n

Florida’s corporate statute allows a restriction that requires an owner to offer the shares to the corporation or other persons first. It can also require those persons to buy the shares. See Fla. Stat. \u00a7 607.0627<\/a>. For the restriction to bind a buyer, it generally must be noted conspicuously on the share certificate or the information statement. Fla. Stat. \u00a7 607.0627 reads: “Unless so noted, a restriction is not enforceable against a person without knowledge of the restriction.”<\/p>\n

See Fla. Stat. \u00a7 605.0502<\/a>. Under Fla. Stat. \u00a7 605.0502, and subject to \u00a7 605.0503, a transferee of an LLC transferable interest has the right to receive, in accordance with the transfer, distributions to which the transferor would otherwise be entitled, but does not gain the right to participate in management; the company need not give effect to those rights until it knows or has notice of the transfer, and a transfer that violates a restriction on transfer in the operating agreement is ineffective as to a person who has knowledge or notice of the restriction at the time of transfer.<\/p>\n

Without an agreement, a spouse, heir or former owner may end up as a co-owner. The agreement gives the remaining owners a defined right to buy first.<\/p>\n\n

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Have questions about what happened?<\/h3>

Ask our team directly. Tell us what you are dealing with and we will explain how the process works from here.<\/p>

Talk to our team<\/a><\/div>
Talk to our team<\/a><\/div><\/div>\n<\/div>\n

Providing the cash to complete the purchase<\/h2>\n

Life insurance is a common way to fund the purchase when an owner dies. A buyer may not have the cash on hand at that moment. Disability needs may be addressed through other arrangements.<\/p>\n

In a cross-purchase, each owner owns a policy on the others and buys their interests directly. In an entity-purchase, the business owns the policies on each owner and buys the interest from the estate or heir. Florida law lets an individual party to a contract for the purchase or sale of an interest in a business entity have an insurable interest in the life of each other party, for that contract only, but such a policy may not be carried out unless the person insured consents in writing to the contract and its terms before or when the contract is entered into, as set out in Fla. Stat. \u00a7 627.404<\/a>. A business that insures key persons must get their written consent first.<\/p>\n

Tax treatment depends on the facts. Under 26 U.S.C. \u00a7 101(a)<\/a>, death benefits are generally excluded from income, subject to exceptions. Under 26 U.S.C. \u00a7 2042<\/a>, proceeds receivable by the executor are included in the gross estate to the extent of the amount receivable, whether or not the decedent held any incidents of ownership, and proceeds receivable by other beneficiaries are included to the extent the decedent possessed at death any of the incidents of ownership, exercisable alone or with another person. IRC \u00a7 2042 reads: “For purposes of the preceding sentence, the term \u201cincident of ownership\u201d includes a reversionary interest (whether arising by the express terms of the policy or other instrument or by operation of law) only if the value of such reversionary interest exceeded 5 percent of the value of the policy immediately before the death of the decedent.” Review the structure with a CPA and the policy terms.<\/p>\n

Insurance is offered by Nischay Rawal, a licensed insurance agent in Florida, separately from the accounting practice. Any specific policy we discuss will be identified by its insurer.<\/p>\n\n

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Keeping the agreement current and getting a coverage review<\/h2>\n

Owners should revisit the agreement after changes in ownership, valuation, business growth, or family circumstances. The insurance must match the agreement’s terms. If the coverage amount falls short of the agreed price, the buyer can be left short.<\/p>\n

Term coverage ends at the end of its term unless it is renewed or converted. The NAIC Life Insurance Buyer’s Guide<\/a> explains the difference between term and permanent coverage.<\/p>\n

If a co-owner has died, become disabled, or is preparing to leave, and the remaining owners are unsure what the agreement requires, you can contact us. We can review how your buy-sell agreement life insurance<\/a> is funded. Any fee for a coverage review is disclosed to you in writing before it is scheduled. Start at our contact page<\/a>.<\/p>\n

Does a buy-sell agreement need to be in writing in Florida?<\/h3>\n

For a Florida corporation, Fla. Stat. \u00a7 607.0627<\/a> allows an agreement among shareholders, or between shareholders and the corporation, to restrict the transfer of shares. Such a restriction is valid and enforceable against the holder or a transferee if that section authorizes it and its existence is noted conspicuously on the front or back of the share certificate or included in the required information statement. If it is not noted that way, it cannot be enforced against a person who does not know about it. Separately, under Fla. Stat. \u00a7 627.404, a life insurance policy that funds the agreement generally may not be carried out unless the insured applies for it or consents in writing to the contract and its terms on or before the time the contract is entered into. Fla. Stat. \u00a7 627.404 reads: “(5) A contract of insurance upon a person, other than a policy of prepaid funeral contract; group life insurance; or group or blanket accident, health, or disability insurance, may not be carried out unless, on or before the time of entering into such contract, the person insured, having legal capacity to contract, applies for or consents in writing to the contract and its terms, except that any person having an insurable interest in the life of a minor younger than 15 years of age or any person upon whom a minor younger than 15 years of age is dependent for support and maintenance may obtain a policy of insurance on the minor.”<\/p>\n

Does life insurance fund a buy-sell agreement?<\/h3>\n

It often does. The policy supplies cash at death, but the policy and the agreement must match.<\/p>\n\n<\/article>\n