Legal
Buy-Sell Agreement
Also known as: Buyout agreement, shareholder buyout, partner buyout agreement
A binding agreement between business owners that specifies what happens to an owner's equity if they die, become disabled, want to retire, or get divorced. Without one, a triggering event becomes a lawsuit.
WHY IT MATTERS
A buy-sell agreement is the contract between co-owners that answers the question nobody wants to ask: what happens to your equity if you die, get divorced, become disabled, or just want out? Without one, a triggering event becomes a legal battle. The deceased founder’s spouse inherits a minority stake and no understanding of the business. The divorcing partner’s ex-spouse gets a claim on equity. The retiring co-founder can’t find a buyer for their shares at a fair price. Buyers in a deal process want to see a clean, enforceable buy-sell agreement because it proves the ownership structure is stable. If the cap table could be disrupted by a death, divorce, or disagreement, that’s a risk the buyer has to price. Most buy-sell agreements include a valuation mechanism (formula, appraisal, or agreed price), funding source (insurance, installment payments, or company redemption), and triggering events. The time to put one in place is years before a sale — not during diligence when the buyer’s attorney asks for it.