When is an entity buy-sell agreement plan typically utilized?

A buy-sell agreement plan is typically utilized when the entity buys life insurance on owners to ensure a smooth transition of ownership interests upon certain triggering events, such as the death or disability of an owner. This type of plan is designed to protect the interests of the remaining owners and provides a predetermined method for purchasing the deceased owner's share, which helps to minimize potential disputes and financial burden on the family of the deceased.

This life insurance funding mechanism ensures that there are adequate funds available at the time of the triggering event to facilitate the buyout of the deceased owner's interest, thus maintaining business continuity and stability. The other scenarios mentioned, while they relate to business ownership or changes in ownership structure, do not specifically encapsulate the primary function of a buy-sell agreement in conjunction with life insurance.