In a cross-purchase plan, the three remaining partners buy out the fourth. When the deal is done, there are three equal partners. In an entity plan, the partnership buys out the departing partner, leaving three equal partners. The difference comes in when you consider how the purchase will be financed. And we'll be coming to that topic soon.
People often come to consider a buy-sell agreement when they are putting together an estate plan.
But death is not the only time when partners leave their partnerships. Partners also retire. And they sometimes leave a business to go on to other opportunities. A good buy-sell agreement will cover all these contingencies. Neither the partners nor the partnership itself is likely to have the resources at this moment to afford a buy out.