The entity purchase plan requires fewer policies and less accounting than the cross-purchase plan if there are more than two owners. The business is in a lower tax bracket than owners, effectively lowering the cost of the plan. Pooling of premium shares is desired when there is an age disparity among the owners. An agreement is needed to continue the business after the death of an owner, free of conflicting interests. Survivors want a guarantee that funds will be available to purchase shares at the death of an owner.
Stability is sought.
Employees, lenders, customers, suppliers, and shareholders are more confident of business continuation after the death of an owner. No unreasonable compensation concerns as in the case when salaries are increased to pay life insurance premiums under a cross-purchase agreement. An unwanted forced sale is to be avoided. A smooth transition of control is desired. Concerns for the Firm Premium payments are nondeductible by the partnership.