A buy-sell agreement is a legal contract that outlines the terms and conditions under which a business owner's share of a company may be sold or transferred in the event of their death, retirement, disability, or other triggering event. The agreement is typically put in place between co-owners of a business, and it helps to ensure that the business remains in the hands of the remaining owners or their heirs.
The buy-sell agreement typically includes a valuation method for the business and specifies the price at which the business will be sold in the event of a triggering event. It also outlines the conditions under which the sale may take place, such as a right of first refusal for the remaining owners or a requirement that the sale be approved by the board of directors.
There are several types of buy-sell agreements, including cross-purchase agreements and stock redemption agreements. In a cross-purchase agreement, the remaining owners of the business agree to buy the departing owner's shares, while in a stock redemption agreement, the company itself buys the departing owner's shares.
Buy-sell agreements can be beneficial for all parties involved in a business, as they provide a clear plan for the future of the business and help to ensure that the interests of all owners are protected. They can also help to avoid disputes and provide financial stability for the business in the event of a triggering event.