Buy-sell agreement

Buy-sell agreement

A buy-sell agreement may be thought of as a sort of "premarital agreement" between business partners/shareholders. It is sometimes called a 'business will'. An insured buy-sell agreement (agreement funded with life insurance on the participating owner's lives) is often recommended by business succession specialists and financial planners to ensure the buy-sell arrangement is well-funded and also to guarantee there will be money when the buy-sell event is triggered.

In the sale of a business, a buy-sell clause (or Shotgun clause) in a shareholder agreement preserves continuity of ownership in the business and ensures that everyone is fairly treated, the buyer as well as the seller. It is a binding contract between business partners or shareholders about the future ownership of the business. A buy-sell agreement is made up of several legally binding clauses in a business partnership or operating agreement (or it can be a separate agreement that stands on its own) that can control the following business decisions:

*Who can buy a departing partner's or shareholder's share of the business (this may include outsiders or be limited to other partners/shareholders);

*What events will trigger a buyout, and;(the most common events that trigger a buyout are: death, disability, retirement, or an owner leaving the company)

*What price will be paid for a partner's or shareholder's interest in the partnership and so on.

Buy-sell agreement can be in the form of a cross-purchase plan or a repurchase (entity or stock-redemption) plan. For greater neutrality and effectiveness of the buy-sell arrangement, the service of a corporate trustee is recommended.


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Look at other dictionaries:

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  • buy-sell agreement —    A contract among the owners of a business (often dating from the time the business was set up) that provides terms for their purchase of the percentage of the enterprise owned by a partner or shareholder who has decided to withdraw …   Business law dictionary

  • buy-and-sell agreement — ➔ agreement * * * buy and sell agreement UK US noun [C] LAW ► an agreement saying that the remaining partners of a company will buy the part of a company owned by a partner who dies, becomes unable to work, or wants to sell: »A buy and sell… …   Financial and business terms

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  • buy-back agreement — / baɪ bæk əˌgri:mənt/ noun an agreement that a producer will buy back goods from a distributor on a specific date if the distributor has not been able to sell them …   Marketing dictionary in english

  • cross-purchase buy and sell agreement — Under this type of arrangement, the surviving owners of a business agree to buy out the withdrawing owner. Assume, for example, R and S are equal shareholders in T Corporation. Under a cross purchase buy and sell agreement, R and S would contract …   Black's law dictionary

  • cross-purchase buy and sell agreement — Under this type of arrangement, the surviving owners of a business agree to buy out the withdrawing owner. Assume, for example, R and S are equal shareholders in T Corporation. Under a cross purchase buy and sell agreement, R and S would contract …   Black's law dictionary

  • agreement — a‧gree‧ment [əˈgriːmənt] noun [countable] 1. an arrangement or promise to do something, made by two or more people or organizations: • Under the agreement, the company will distribute our products in North America. • What happens if the warring… …   Financial and business terms

  • buy — I verb acquire by purchase, acquire ownership of, bargain for, complete a purchase, contract, get in exchange, make a purchase, make one s own, mercari, obtain, order, pay a price for, pay cash for, pay for, procure, procure title to, purchase,… …   Law dictionary

  • buy — To acquire the ownership of property by giving an accepted price or consideration therefor; or by agreeing to do so; to acquire by the payment of a price or value; to purchase. To obtain something for a price, usually money. See also purchase @… …   Black's law dictionary

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