buy-sell agreements

A buy-sell agreement is an agreement between two parties in which the two agree to exchange goods or services. In terms of business, a buy-sell clause in a shareholder agreement preserves continuity of ownership in the business and insures 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 what price will be paid for a partner’s or shareholder’s interest in the partnership and so on?

A buy-sell agreement may be thought of as a sort of “premarital agreement” between business partners/shareholders.