Buy-Sell Agreement

Business, Legal & Accounting Glossary

Definition: Buy-Sell Agreement

Buy-Sell Agreement

What is the dictionary definition of Buy-Sell Agreement?

Dictionary Definition

n. a contract among the owners of a business which provides terms for their purchase of a withdrawing partner’s or stockholder’s interest in the enterprise.

Full Definition of Buy-Sell Agreement

A buy-sell agreement is a legally binding contract between shareholders and/or partners (owners) of a business that prohibits third parties from acquiring their ownership interest. It establishes a systematic succession plan for ownership and management of a business in the event that an owner wishes to exit.

Every private company with multiple owners should have a buy-sell agreement because it establishes the exit rules. When a co-owner chooses to leave the business or is forced to leave, a buy-sell agreement specifies who is permitted to purchase the departing owner’s shares (outsiders or other owners), what circumstances trigger a buyout (retirement, death, disability, irreconcilable differences, etc. ), and what price will be paid for the departing owner’s interest (repurchase or cross-purchase).

Life events, such as disability, can be difficult to manage, which is why the buy-sell agreement is critical. It typically includes a number of contractual provisions that safeguard the departing owner, such as formulating the valuation and establishing a funding mechanism and payment terms (could be an insurance policy). Additionally, the buy-sell agreement safeguards the other owners by limiting who can buy-in. The departing owner cannot simply sell to anyone outside the company, but must first offer the stock back to the company for a buy-back and/or to insiders with a first right of refusal.

Related Phrases

Exit Planning
Exit Strategy
Purchase and Sale Agreement
Material Adverse Change
Standstill Agreement
Lock-Up Agreement
Shark Repellents

Cite Term

To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.

Page URL
Modern Language Association (MLA):
Buy-Sell Agreement. Payroll & Accounting Heaven Ltd.
October 04, 2022
Chicago Manual of Style (CMS):
Buy-Sell Agreement. Payroll & Accounting Heaven Ltd. (accessed: October 04, 2022).
American Psychological Association (APA):
Buy-Sell Agreement. Retrieved October 04, 2022
, from website:

Definition Sources

Definitions for Buy-Sell Agreement are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 26th January, 2022 | 0 Views.