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


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


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Buy-Sell Agreement. PayrollHeaven.com. Payroll & Accounting Heaven Ltd.
October 04, 2022 https://payrollheaven.com/define/buy-sell-agreement/.
Chicago Manual of Style (CMS):
Buy-Sell Agreement. PayrollHeaven.com. Payroll & Accounting Heaven Ltd.
https://payrollheaven.com/define/buy-sell-agreement/ (accessed: October 04, 2022).
American Psychological Association (APA):
Buy-Sell Agreement. PayrollHeaven.com. Retrieved October 04, 2022
, from PayrollHeaven.com website: https://payrollheaven.com/define/buy-sell-agreement/

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.