Alice, Betty and Carol are equal owners of ABC, Inc. They believe that ABC is worth about $3,000,000 today. They think that the value of ABC will increase by about 5% to 10% per year. Each of them has a basis in their stock of $500,000. ABC is very profitable. Each of them draw an annual salary of $250,000. They agree that if any one of them dies, they do not want anyone else to be the owner of the decedents stock. Your homework assignment is to do the following:

Explain the differences between a stock redemption buy-sell agreement and a cross-purchase buy-sell agreement. Explain the mechanics of the agreement if they choose to use a stock redemption agreement. Explain the mechanics of the agreement if they choose to use a cross-purchase agreement. Explain which method you recommend they use and why.