A buy-sell agreement is a legally binding agreement between co-owners of a business that governs the situation if a co-owner dies or is otherwise chooses to or is forced to leave the business.
It may be thought of as a sort of premarital agreement between business partners/shareholders or is sometimes called a “business will”. An insured buy-sell agreement (triggered buyout is funded with life insurance on the participating owners’ lives) is often recommended by business-succession specialists and financial planners to ensure that the buy-sell arrangement is well-funded and to guarantee that there will be money when the buy-sell event is triggered.
The two most common forms of agreements are cross-purchase agreements and redemption agreements. In a cross-purchase agreement, remaining owners purchase the interests of the selling or deceased owner. In a redemption agreement, the business entity redeems the interests of the selling or deceased owner.
Terms of buy-sell agreements can help partners manage potentially difficult situations in ways that protect the business and the interest of the partners. For example, the agreement can restrict owners from selling their interests to outside investors without approval from the remaining owners. This protects the business and the remaining owners from outside investors who may have conflicting views or goals.
Bryan R. Battina and his law firm have extensive experience negotiating and drafting buy-sell agreements.