A buy sell agreement, also known as a buyout agreement, a buy-sell agreement is a legal written document between co-owners of a business. The written arrangement mentions if one of the co-owners is to die or forced to leave the business, what will happen to the business. Many call this a premarital agreement between shareholders or business partners, also known as a business will. This agreement is recommended by financial planners to make sure that the buy-sell arrangement is well-funded and guarantees that there is money when this event occurs.
A buy-sell agreement can include many things such as what events will trigger a buyout (disability, owner leaving company, retirement or death), who can buy the deceased or departing partner/shareholder’s share of the business and what price will be paid for their interest in the partnership/company. Without this written legal document, a business can face many problems if any of these situations occur including divorce.
How it should be used?
Use a buy-sell agreement if you want to establish a fair price for the business interests before any disagreements or events occur where the owner wants to sell out. You may also use this legal agreement if you want the remaining owners of a company to buy out the interests of someone, who is disabled, retired, died or is going through a divorce. A buy-sell agreement works if you co-own a business and want to restrict the other owners from selling their interests to others without prior approval.
Provisions for death, retirement, divorce, disability and voluntary and involuntary transfers of the company all are documented here. The agreement will control how all the owners or interests of a business can sell their interest in the future, who they can sell to, when they can and for how much. A buy sell agreement works for corporations, proprietorships, partnerships and LLCs and can be created at any time, but should always be completed when a business is formed, if possible.
This is also known as a business will, business prenup, buyout agreement, buy and sell agreement and buy sell agreement form.