Why every business with 2 or more owners needs a buy-sell agreement

By Startup Issues

A buy-sell agreement is a document that preserves continuity of business ownership when specific events occur, such as death or disability of a business owner. It is a contract between shareholders or business partners concerning the future ownership of the business and can be drafted as part of the company’s shareholder agreement or as a separate agreement.

The buy-sell agreement typically controls events triggering shareholder buyout, persons that may purchase the departing shareholder’s stock, the valuation of the departing shareholder’s stock and how the buyout will be funded.

The advantages of a buy-sell agreement are that it sets out a strike price well in advance for the departing shareholder’s stock, creates a market for the business interest (which can be extremely difficult in closely held corporations) and assures business continuity for the remaining active owners, employees, customers and creditors.


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