If the business is a company there are 2 ways this can be set up.
The first is for each shareholder to take out a plan on their own life for the value of their share of the business. They write that plan subject to a business trust under which all of the other shareholders are the beneficiaries, taking care to make sure the trust is completed before the plan starts. The shareholders then enter into an agreement, which gives the family of a shareholder who dies an option to sell their share to the other shareholders. The other shareholders also have an option to buy their share. If either the family or the other shareholders exercise their option the others must then comply. They can also include either a single option or a double option on diagnosis of a critical illness.
The second option is for the company to purchase the shares instead of the other shareholders. Under this arrangement the company would take out a plan on the life of each of the shareholders so that the company receives the money directly and no trust is needed. They would still enter into a cross option agreement, but this time the agreement would be between each shareholder and the company. The agreement would provide a double option on death and they can again include either a single option or double option on critical illness. There are several other formalities they must go through to actually purchase the shares and not all companies can do this.
If the business is a partnership there are also 2 ways this can be done.
The first is the same as the first way for a company. Each partner takes out a plan on their own life and puts that under the business trust for the benefit of the other partners. They then enter into a cross option agreement giving the same options to buy and sell the share of the business to their family and the other partners. If either side exercises their option the other side must comply.
The second is what is known as automatic accrual. In this type of arrangement instead of putting the plan under trust for the other partners each partner takes out a plan for the value of their share of the business. The plan is written under trust for the benefit of their family using the normal split trust rather than a business trust. Within their partnership agreement there will usually be a clause, which states that if any partner dies their share of the business automatically passes to the other partners and that they will maintain a policy to the value of their share of the business to compensate their family. No purchase of the share therefore occurs, it simply accrues to the other partners, hence the name automatic accrual.