A buy–sell agreement, also known as a buyout agreement, is a legally binding agreement between co-owners of a business that governs the situation if a co-owner dies or is otherwise forced to leave the business, or chooses to leave the business.
[de Frutos, M.-A. and Kittsteiner, T. (2008), Efficient partnership dissolution under buy-sell clauses. The RAND Journal of Economics, 39: 184–198. ]
It may be thought of as a sort of premarital agreement between business partners/shareholders or is sometimes called a "business will". An insured buy–sell agreement (triggered buyout is funded with life insurance on the participating owners' lives) is often recommended by business-succession specialists and financial planners to ensure that the buy–sell arrangement is well-funded and to guarantee that there will be money when the buy–sell event is triggered.
Clauses
A buy–sell agreement consists of several legally binding clauses in a business partnership or operating agreement or a separate, freestanding agreement, and controls 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
In finance, a buyout is an investment transaction by which the ownership equity of a company, or a majority share of the stock of the company is acquired. The acquiror thereby "buys out" the present equity holders of the target company. A buyout ...
, (the most common events that trigger a buyout are: death, disability, retirement, or an owner leaving the company) and;
*What price will be paid for a partner's or shareholder's interest in the partnership and so on.
Buy–sell agreement can be in the form of a cross-purchase plan or a repurchase (entity or stock-redemption) plan. For greater neutrality and effectiveness of the buy–sell arrangement, the service of a corporate trustee is recommended.
References
{{DEFAULTSORT:Buy-Sell Agreement
Mergers and acquisitions