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A buy-sell agreement decides what happens to an owner's share when they die, retire, or walk away. Answer a few guided questions and download a customizable template that is ready to sign.
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A buy-sell agreement is a contract among the co-owners of a business. It sets the price and terms for transferring an ownership share when a defined event occurs. Owners also call it a buyout agreement.
Think of it as the plan you write while everyone still gets along. It answers three questions ahead of time: who may buy an exiting owner’s share, how that share gets valued, and how the buyer pays for it.
Without that plan, a departing owner’s stake can land with a spouse, an heir, or an outside buyer. That person may have no interest in running the company. Therefore most businesses with two or more owners put the terms in writing early, long before anyone needs them.
Any company with more than one owner benefits from a buyout plan, and the need grows as the business gains value. Partnerships, LLCs, closely held corporations, family firms, and professional practices all rely on them.
The document sits dormant until a triggering event happens. Common triggers include:
Solo owners have a use for this too. For example, a single owner can sign a one-way agreement with a key employee who commits to buying the company if that owner dies.
Three structures cover nearly every situation, and the right one depends on who has cash available and who wants control. Our buy-sell agreement template supports all three.
The remaining owners buy the departing owner’s share directly, in proportion to what they already hold. This suits two or three owners well; however, it grows unwieldy as the group expands.
The company itself buys the share back and retires it. Each remaining owner’s percentage then rises automatically, so nobody has to fund the purchase out of pocket.
The company gets the first option to buy, and the owners step in for whatever it declines. Many growing firms pick this route because it keeps both doors open.
A complete agreement leaves nothing for a grieving family or a departing partner to argue about later. Cover each section below in plain language.
List every owner by legal name, with the exact percentage each one holds. Also revisit this section whenever ownership shifts.
Spell out which events start a sale, and say whether that sale is mandatory or optional. A death clause is usually mandatory, while a voluntary exit clause often gives the other owners a choice.
Name a single valuation method and apply it to every trigger. Mixing methods invites arguments about which one governs.
State whether the buyer pays in a lump sum or in installments. For installment deals, include the down payment, the schedule, the interest rate, and the consequence of a missed payment.
Bar owners from selling, gifting, or pledging shares to outsiders without approval. Most agreements also give the company and the other owners a right of first refusal.
Address confidentiality, and decide whether the exiting owner may compete or solicit clients. Confirm how they come off any personal guarantees as well.
Pick mediation, arbitration, or court, then close with dated signature lines for every owner and for the company.
Valuation and funding are where good intentions fall apart, so settle both while the business is calm.
Agreed value is the simplest option, but it goes stale quickly. An appraisal costs more, though it holds up better when the parties disagree.
A price means little if nobody can pay it. Common funding sources include life insurance on each owner, disability buyout coverage, a company sinking fund, an installment note, or outside financing.
Tip: Insurance-funded buyouts carry tax and estate consequences that shift with the structure you choose. Ask a tax professional or business attorney to review the funding plan before you sign, especially when the company owns the policies.
A buy-sell agreement is a private contract among owners, not a public filing. It lives with your internal company records, alongside your formation documents.
Even so, it has to fit the paperwork that already governs the business. Review your operating agreement, partnership agreement, bylaws, or shareholder agreement for transfer rules that clash with the new terms, then amend whichever document is out of step.
Signing formalities vary by state and by entity type, so check your state’s official website before you sign. Your lender, insurer, or franchisor may also attach conditions to ownership transfers, and asking them directly is the fastest way to find out.
Business ownership raises layered tax and estate questions. Therefore a local attorney or CPA earns their fee when the company holds real property, when owners live in different states, or when relatives are involved.
Signing takes an afternoon; keeping the document accurate takes discipline. Follow this sequence.
After that, treat the contract as a living document. Review it once a year. Also update it whenever an owner joins or leaves, ownership percentages shift, or the funding plan changes.
Tip: Put a calendar reminder in the same month each year to revisit the price. A value fixed five years ago is the most common reason a buyout ends in a fight.
Start your buy-sell agreement today and have a signed plan in place before anyone needs it.
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