What is a Buy-Sell Agreement?
A buy-sell agreement, also called a buyout agreement, is an agreement between co-owners of a business that controls what happens in the case that a co-owner dies or chooses to give up ownership of the business. It can also be referred to a “business will”. Buy-sell insurance is often suggested by accountants, lawyers and financial planners to ensure the arrangement is well-funded and solidify that there will be money in the event a buy-sell agreement is triggered.
A buy-sell agreement is made up of legal clauses in a partnership agreement or a freestanding agreement and distinguished the following business decisions:
- Who can purchase a departing partner’s or shareholder’s portion of the business
- Any circumstances that will trigger a buyout (for example: death, disability or retirement)
- How the business will be valued for a partner’s share in the business
The buy-sell agreement should be written by a lawyer but reviewed by your accountant to ensure that tax efficiency in handling to sale of the business for all parties involved.