Buy-sell Agreements

A buy-sell agreement, or buyout agreement, is a contractual arrangement between two parties, which enumerates the terms of transferring an ownership interest in a business.

Many co-owners enter a buy-sell agreement from the beginning of forming a business. In this situation, the buy-sell agreement establishes the terms by which partners can purchase another partner’s interest in the business if he or she should die or decide to leave. Some financial planners suggest that the partners fund this agreement with a life insurance policy. This ensures that the funds will be available to purchase a partner’s ownership interest if he or she dies. At a minimum, such agreements should establish who can purchase a departing partner’s shares, what events trigger a buyout, and the price to be paid for the shares.

Parties might execute a buy-sell agreement after they have already started running the business. This may be necessary when one or more partners have decided to leave the business. In this situation, the parties will have to negotiate the terms to bring finality to any issues of contention regarding the buyout.