Contract Glossary
Buy-Sell Agreement
Definition
A legally binding agreement between co-owners of a business that governs what happens to an owner's share if they leave, die, become disabled, divorce, or want to sell. Think of it as a prenuptial agreement for business partners — it sets the rules for ownership transitions before anyone gets emotional or adversarial.
In Practice
Three partners own a consulting firm equally. One partner dies unexpectedly. Without a buy-sell agreement, the deceased partner's spouse inherits their 33% share — and now the surviving partners have a new business partner they didn't choose. A buy-sell agreement funded by life insurance prevents this: it requires the company (or the other partners) to purchase the deceased partner's share at a predetermined price, funded by the insurance payout. The family gets fair value, the surviving partners keep control, and nobody ends up in court.
Example Clause
Upon the occurrence of a Triggering Event (death, disability, voluntary withdrawal, termination for cause, divorce, or bankruptcy of any Owner), the Company shall have the right and obligation to purchase, and the affected Owner (or their estate) shall have the obligation to sell, all of the affected Owner's Ownership Interest at the Purchase Price determined in accordance with Section 4 of this Agreement.
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Frequently asked questions about buy-sell agreement
Common triggers include death, permanent disability, retirement, voluntary resignation, termination for cause, divorce (to prevent an ex-spouse from becoming a co-owner), bankruptcy, and a partner wanting to sell their share to an outside party. The agreement should list every trigger event explicitly — don't rely on catch-all language that invites disputes later.
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Create your contractThis content is for informational purposes only and does not constitute legal advice. For contracts with significant financial or legal implications, review by a qualified attorney is recommended.