A buy/sell agreement is a legally binding contract between business owners that determines what happens to a departing owner's share — through death, total disability, or sometimes critical illness — and how the remaining owners (or the business itself) will fund the purchase. Key person insurance is one common funding mechanism for buy/sell agreements: the business or remaining partners hold cover on each owner, and insurance proceeds fund the buyout when a triggering event occurs. The structure usually has the policies arranged for capital purposes (since the proceeds buy a capital asset — the departing owner's equity), which affects tax treatment. Premium deductibility is generally lost for capital-purpose policies, but proceeds are typically not assessable income (CGT considerations may still apply). Two common structures: (a) cross-ownership, where each partner owns and pays for cover on each other partner — proceeds go directly to the surviving partners to buy out the departed share; (b) self-ownership where the business owns cover on each partner — proceeds go to the business, which then buys back the share. Each structure has different tax, CGT, and asset-protection consequences. Buy/sell agreements without funding (cash reserves, bank loans, or instalment plans) are common alternatives. A licensed adviser working alongside your accountant and lawyer is the standard approach when setting up these arrangements, given the legal, accounting, and insurance interaction.