How to write a buy sell agreement

What Is a Buy and Sell Agreement?

A buy and sell agreement is a legally binding contract that stipulates how a partner’s share of a business may be reassigned if that partner dies or otherwise leaves the business. Most often, the buy and sell agreement stipulates that the available share be sold to the remaining partners or to the partnership.

The buy and sell agreement is also known as a buy-sell agreement, a buyout agreement, a business will, or a business prenup.

Key Takeaways

  • Buy and sell agreements stipulate how a partner’s share of a business may be transferred in the event of the partner’s death or departure.
  • Buy and sell agreements may also establish a method for determining the value of a business.
  • The two most-common buy and sell agreements are cross-purchase, and redemption; some agreements will combine the two.
  • Cross-purchase agreements allow remaining owners to buy the interests of a deceased or selling owner.
  • Redemption agreements require the business entity to buy the interests of the selling owner.

How a Buy and Sell Agreement Works

Buy and sell agreements are commonly used by sole proprietorships, partnerships, and closed corporations in an attempt to smooth transitions in ownership when each partner dies, retires, or decides to exit the business.

The buy and sell agreement requires that the business share be sold to the company or the remaining members of the business according to a predetermined formula.

In the case of the death of a partner, the estate must agree to sell.

Understanding Buy and Sell Agreements

There are two common forms of agreements:

  • In a cross-purchase agreement, the remaining owners purchase the share of the business that is for sale.
  • In a redemption agreement, the business entity buys the share of the business.

Some partners opt for a mix of the two, with some portions available for purchase by individual partners and the remainder bought by the partnership.

In order to ensure that funds are available, partners in business commonly purchase life insurance policies on the other partners. In the event of a death, the proceeds from the policy will be used towards the purchase of the deceased’s business interest.

When a sole proprietor dies, a key employee may be designated as the buyer or successor.

Partners should work with both an attorney and a certified public accountant when crafting a buy and sell agreement.

Key Considerations in Buy and Sell Agreements

Buy and sell agreements are designed to help partners manage potentially difficult situations in ways that protect the business and their own personal and family interests.

For example, the agreement can restrict owners from selling their interests to outside investors without approval from the remaining owners. Similar protection can be provided in the event of a partner’s death.

A typical agreement might stipulate that a deceased partner’s interest be sold back to the business or remaining owners. This prevents the estate from selling the interest to an outsider.

In addition to controlling ownership of the business, buy and sell agreements spell out the means to be used in assessing the value of a partner’s share. This can have uses outside the question of buying and selling shares. For example, if there is a dispute among owners about the value of the company or of a partner’s interest, the valuation methods included in the buy and sell agreement would be used.

If you have a business partner, you need to think about what might happen in case the partner leaves your company for any reason.

Situations like these can be unpleasant. To avoid any further complications, you should prepare a reliable buy-sell agreement.

A company should have lots of legal documents to ensure the business processes run smoothly.

As writing a contract requires knowledge and experience, even with lots of templates you can use, most people still hire lawyers for this task. With DoNotPay, you can avoid unnecessary costs of hiring an attorney as we offer plenty of legal document templates that can be fully customized to your needs.

What Is a Buy-Sell Agreement?

A buy-sell agreement is a contract that defines how a partner’s business share can be transferred in case that partner leaves the company or dies. This type of arrangement can also set a way to determine the business value.

In most cases, buy and sell agreements stipulate that the remaining business share needs to be sold to other business partners. A buy-sell agreement is also called a:

  • Business will
  • Business prenup
  • Buyout agreement
  • Buy and sell agreement

The purpose of a buy-sell agreement is to ensure a smooth ownership transition when a business partner:

  • Dies
  • Retires
  • Chooses to leave the business for any reason

Based on this agreement, the remaining partners or the company buys the business share of the retired, deceased, or leaving partner.

DoNotPay can assist you with the preparation of various business agreements and protect your interests if something goes wrong.

Types of a Buy-Sell Agreement

There are two main types or forms of buy and sell agreements.

In some cases, business partners can choose a mix of the two above-listed agreements where individual partners buy a part of the business share and the business partnership purchases the remainder.

Another common practice is for business partners to buy life insurance policies on one another. This allows the remaining partner(s) to use the policy proceeds for the purchase of the business share of the deceased partner.

In case of a sole proprietor’s death, a key employee can be the successor or buyer.

How to write a buy sell agreement

Creating legal documents is not easy, and it is common to hire an attorney, a certified accountant, and other experts. DoNotPay can help you save up and write numerous contracts on your own, such as a bill of sale, NDA, non-compete, or an independent contractor agreement.

DoNotPay Is Your Trustworthy Legal Documents Assistant

DoNotPay can help you create different agreements to protect your personal, family, and business interests. Apart from the contracts already mentioned in the previous sections, we can assist in the preparation of a lease agreement in case you decide to allow another business or person to use your business or personal property.

How to write a buy sell agreement

Use our legal document database to create your rock-solid agreements. Here is how:

  1. Open DoNotPay in a web browser
  2. Enter the name of the document (for example, an Operating Agreement )
  3. Provide the necessary details to the chatbot (names, addresses, and other relevant data)

In a few clicks, DoNotPay will create a document tailored to your business or personal specifications.

How to write a buy sell agreement

If you are thinking of getting married, our app will help you draft a prenuptial agreement . Should something go wrong and you need to ensure your children’s interests come first, opt for a custody agreement .

Protect Your Business With a Buy-Sell Agreement

If your company does not have a buy-sell agreement, you can end up with:

  • Your business partner’s spouse or partner running the business with you
  • A bank getting a share in your business
  • Your former business partner’s children becoming the management members

These are some of the potential scenarios that can easily happen should you fail to stipulate the methods and criteria in the buy-sell agreement. You can get business partners that either do not know anything or do not care about the business you have been running for years.

To prevent these events, you need a buy-sell agreement that establishes:

  • The fair price of shares
  • A business continuity plan
  • An exit plan for business partners
  • A business interest plan

What To Consider When Drafting a Buy-Sell Agreement

Buy and sell agreements help you overcome possibly challenging situations by protecting your business and personal interests.

A well-created buy-sell agreement should restrict all owners from selling their shares and interests to outsiders without the remaining owners’ approval.

Most agreements define that a deceased partner’s interest needs to be sold to the other owners or the business. This is how a buy and sell agreement restricts the estate from selling the business share to an outside investor.

These agreements can also set the methods to assess the value of the partner’s share. This set valuation method can be helpful in different matters, such as:

  • Buying and selling of shares
  • Preventing disputes among remaining owners

Should these situations occur, the valuation method from the buy-sell agreement will be used.

How Else Can DoNotPay Help You Find and Save Cash?

Our Missing Money feature helps you find any unclaimed assets in your name in any state. An additional perk is that you can claim your money right in the app—no need for further research!

We can also make sure you don’t pay for any unfair parking citations and get the rightful compensation from airlines for any canceled or delayed flight.

Don’t let big companies scare you into not claiming your warranties or insurance . DoNotPay helps you file these claims and appeal any rejections in minutes, which brings you closer to getting your money.

We can also delay your bill payments , get your college fees waived , or sign you up for paid clinical trials to earn some extra cash!

DoNotPay Keeps the Spammers Away

Whether you’re dealing with email spam, text scammers, robocalls, or severe harassment, DoNotPay can help.

Use our virtual credit card or the Burner Phone feature to sign up for free trials safely—without revealing your real info. DoNotPay will make sure that no company can reach you when you use our tools.

We provide a fake email address, credit card info, and phone number that are in no way connected to your real data.

How to write a buy sell agreementBY REBECCA PAVESE

E ven if not everyone has a will, most people understand why they should. But knowing how a business will go on without an owner or a partner can be just as important.

Unfortunately, many business owners neglect this important task.

A buy-sell agreement, despite the name, is not a mechanism for selling a business. It is a contract among the owners of a business or between the owners and the entity itself, which sets out the rules for handling certain specific, future events — usually an owner’s departure, planned or unplanned.

The agreement governs how to handle the interests of proprietors, partners or shareholders in the event that they can no longer work due to circumstances such as disability, retirement or death. While it is most often used in partnerships, privately owned companies or closely held corporations, a buy-sell agreement can be useful even for sole proprietors if the owner intends for a key employee or family member to take over the business one day.

Business owners gain a variety of benefits from entering into a buy-sell agreement. First, it can establish in advance a fair formula for valuing a share of the business. If one of the owners wishes to leave and the remaining owner or owners wish to buy the departing individual’s share, they will have competing interests regarding valuation in the moment. If they agree in advance, it is less likely anyone will feel unfairly treated.

Business co-owners may also wish to ensure that no one sells their stake in the business to a third party who is an undesirable or impractical partner. A typical buy-sell agreement gives the business, the owners or both a right of first refusal on certain proposed transfers of a stake in the enterprise. This means owners are more likely to keep control of the business, even if an individual with a large stake chooses to leave. Similarly, an agreement could stipulate that stakeholders in a closely held business must sell their shares back to the business when they exit.

Buy-sell agreements can also be useful in creating liquidity in the event of an owner’s departure, especially if it is unexpected. The agreement can ensure the withdrawing owner — or a deceased owner’s heirs — will have a market for a stake in the business that might not otherwise exist.

ELEMENTS OF A GOOD AGREEMENT

Drafting a buy-sell agreement early in the life of a business is important because it allows partners or co-owners to discuss contingencies such as a stakeholder’s death, disability or retirement. It also creates a way to guard against possible but less certain future scenarios such as a serious argument between stakeholders, an owner’s divorce or bankruptcy, or a partner using a stake in the business as collateral and then defaulting on the loan. By the time any of these situations occur, emotions are likely to run high. Setting up a plan in advance can not only safeguard the business but also reduce stress on owners during potentially trying circumstances.

Revisiting business succession plans every three to five years is a good idea, though owners should also reassess any time the business experiences a major change, such as rapid growth, the addition or departure of an owner or major stakeholder, or substantial changes to the business model.

When business owners create — and subsequently revisit — a buy-sell agreement, they should gather a team of professionals to help. This team should include an experienced lawyer, an accountant, a tax expert and, potentially, a valuation professional. (Sometimes a single individual may fulfill more than one of these roles.) Depending on the circumstances, owners may also want to involve their personal estate planning professional or financial planner.

A valuation professional is a good addition to the team because valuing the business is both a crucial part of a good buy-sell agreement and a complicated undertaking. Some buy-sell agreements include a specific formula to determine the value of a stake in the business. Others simply include a clause specifying that a valuation expert will assess the business at the appropriate time when an owner leaves.

Regardless of the formula or expert involved, the most important thing is for owners to agree on a valuation method in advance.

In addition to specifying a valuation method, a buy-sell agreement should include rules for who can buy and sell stakes in the business and under what circumstances. For instance, the founder of a family business may want to ensure that the enterprise stays partly or completely in the hands of family members or winds up there in the future. In many cases, a purchaser will be the other owners, the business itself or some combination of these two.

Because issues like death, divorce or bankruptcy cannot always be anticipated, rules about funding are also an important part of a buy-sell agreement. Agreements should specify how the business will fund a buyout of a departing owner. Specificity allows the business to plan realistically for future obligations. Requiring an immediate lump-sum buyout can make buying back an interest challenging or even impossible for some businesses, so many agreements provide for a down payment followed by installments over a few years at a reasonable rate of interest.

In some businesses, especially partnerships, co-owners purchase life insurance policies on one another — or the business purchases policies insuring key personnel — in order to fund buyouts of an owner’s heirs in the case of his or her unexpected death. This technique can become expensive with larger numbers of shareholders, so it is not right for every business, but it is a common way to fund a buy-sell agreement among a few key individuals.

While buy-sell agreements primarily address nontax goals, owners should keep tax obligations in mind when creating them. Funding concerns extend to how the business will pay the Internal Revenue Service, not only the seller.

The best buy-sell agreement is one that must be tailored to fit particular business needs and long-term goals. With some professional help and foresight, business owners can avoid unpleasant surprises when, inevitably, one of their number goes his or her own way.

How to write a buy sell agreement

Along with a general agreement about ownership and responsibilities, every business with multiple owners needs a buy-sell agreement. It covers how and when an owner can sell shares and at what price. The agreement should be signed before the business is started, but if you neglected to do so, do it now. Without a buy-sell, angry partners usually end up in court, and the business usually ends up wrecked. If you don’t have one, says Zachary Shulman, a venture capitalist and professor at Cornell University’s Johnson School, “it is incredibly difficult to negotiate when something goes wrong.”

The buy-sell should specify triggers that will set the agreement in motion. If an owner retires, for example, you may not want to allow him to continue to hold his shares. If an owner gets divorced or declares bankruptcy, you want to protect the business from the spouse and the courts. If an owner dies, you may want his shares to be sold to existing owners rather than passed to his three-year-old. (The company often takes out life insurance on each partner, so it can purchase the shares of a deceased partner if necessary.)

The buy-sell may also have a drag-along-and-tag-along provision. It specifies that if the majority owner or owners–“majority” should be defined in the agreement–want to sell to a third party, they can force the sale of minority owners. On the tag-along side, it promises minority owners the same proportionate price as majority owners in a sale. “These are very important, because they affect the marketability of a company,” says James McMaster, a lawyer at Sherman & Howard in Denver. Either way, the buy-sell should give a formula for valuing shares to ensure a fair price for a departing owner.

The shotgun clause that George Faison and Ariane Daguin included in their agreement at D’Artagnan is useful for two-person partnerships. The clause stipulates that one partner can offer to buy out the other at a price he chooses. The other must then accept the sale or buy the company for the same price. Since this can favor the wealthier partner, the poorer one may want to try to stipulate that the buyout can be funded over time or with profits from the ongoing business.

In addition, the buy-sell should require a right of first refusal. That means if a partner finds an outside buyer for his shares, he must first offer those shares to the existing owners, who must match the outside buyer’s price. This shields the remaining partners from suddenly running the company with a dubious new owner.

For more on buy-sells–and they are critical, so professional help is necessary–read Nolo’s Business Buyout Agreements and haul in a lawyer.

мая 29, 2018 at 01:46 PM Share & Print

Thank you for sharing!

Starting a business is an invigorating process. All founder energy is focused on the success of the new enterprise.

For that reason, the founders often overlook an essential element of business planning: designing the exit strategy.

Creating a formal buy-sell agreement from the start will mitigate risks that could hinder, or even destroy, your client’s business down the road.

Simply stated, buy-sell agreements are the blueprints that guide any eventual buyout, sale, divorce or death of an owner. Most commonly, buy-sell agreements are put in place to protect the family of an owner if a partner dies, is debilitated or decides to exit or retire, while allowing the remaining owners to move the business forward.

Another common occurrence is the passing of the baton, or transition of the business ownership to a current employee or outside individual. The buy-sell agreement can include a provision to pay the taxes on the transfer of ownership to the new owner, while protecting the company’s cash flow to keep business operations running smoothly.

An insured buy-out agreement uses life insurance to ensure that funds will be available to pay for the execution of the agreement. Many buy-sell agreements also incorporate disability insurance.

With any business agreement, having a cadre of advisors is critical, and for this particular agreement, having a legal team and a business advisor at the table, as well as a life insurance advisor, can prove invaluable.

Below are the three most relevant buy-sell agreements when it’s time for an owner to give up his or her stake in a company.

  1. Cross Purchase Agreement: This structure is for two or more parties and is utilized during ownership changes when shares are crossed over to other owners.
  2. Stock Redemption Agreement: In this structure, the entity, or the business, is the focal point and if shares are exchanged, the entity will repurchase them. This structure gives owner(s) peace of mind that they can sell shares back to the entity, if needed.
  3. Combination Agreement: This structure gives owners the option to do either of the above, meaning they can sell their stake to either the entity or to other owner(s). The structure of the combination agreement will determine the right of first refusal between owner and equity. This strategy provides tremendous flexibility to both sell and purchase additional shares, and is commonly used to ensure shares remain with the original owners.

A buy-sell agreement could involve a family patriarch with several adult children who love each other, and the business — and spouses or grandchildren who see everything differently.

When that kind of owner lacks a well-designed, well-funded buy-sell agreement, the result could be a failure to treat family members in similar situations in a similar way, emotion-driven decisions about the business, and permanent family rifts.

The most common mistake in developing a buy-sell agreement is owners not properly answering, ‘how much do we need to fund the agreement?’ Using a business advisor to quarterback this process is highly recommended, as too often owners take shortcuts during the process and valuation details are overlooked, resulting in poorly funded buy-sell agreements.

Free Preview Sell Agreement Contract

How to write a buy sell agreement

How to write a buy sell agreement

How to write a buy sell agreement

How to write a buy sell agreement

Description Sell Agreement Template

This form addresses important considerations that may effect the legal rights and obligations of the parties in a buy-sell agreement. It is a tool to help assure the orderly transfer of interests in the partnership or corporation. This questionnaire enables those seeking legal help to effectively identify and prepare their issues and problems. Thorough advance preparation enhances the attorney’s case evaluation and can significantly reduce costs associated with case preparation.

This questionnaire may also be used by an attorney as an important information gathering and issue identification tool when forming an attorney-client relationship with a new client. This form helps ensure thorough case preparation and effective evaluation of a new client’s needs. It may be used by an attorney or new client to save on attorney fees related to initial interviews.

How To Fill Out Sell Agreement Purchase ?

When it comes to drafting a legal document, it’s easier to leave it to the experts. However, that doesn’t mean you yourself can not find a template to utilize. That doesn’t mean you yourself cannot get a sample to use, nevertheless. Download Buy Sell Agreement Questionnaire right from the US Legal Forms site. It offers numerous professionally drafted and lawyer-approved documents and templates.

For full access to 85,000 legal and tax forms, users simply have to sign up and choose a subscription. As soon as you’re signed up with an account, log in, find a specific document template, and save it to My Forms or download it to your device.

To make things much easier, we have provided an 8-step how-to guide for finding and downloading Buy Sell Agreement Questionnaire quickly:

  1. Make confident the form meets all the necessary state requirements.
  2. If possible preview it and read the description prior to buying it.
  3. Click Buy Now.
  4. Choose the appropriate subscription for your requirements.
  5. Create your account.
  6. Pay via PayPal or by debit/credit card.
  7. Select a needed format if several options are available (e.g., PDF or Word).
  8. Download the file.

Once the Buy Sell Agreement Questionnaire is downloaded it is possible to complete, print and sign it in almost any editor or by hand. Get professionally drafted state-relevant papers within a matter of seconds in a preferable format with US Legal Forms!

All forms provided by US Legal Forms, the nations leading legal forms publisher. When you need Sell Agreement Form, don’t accept anything less than the USlegal™ brand. “The Forms Professionals Trust ™

About the template

Last revision: 05/11/2021

Size: 6 to 9 pages

Available formats: Word and PDF

How does it work?

1. Choose this template

2. Complete the document

Answer a few questions and your document is created automatically.

3. Save – Print

Your document is ready! You will receive it in Word and PDF formats. You will be able to modify it.

Buy-Sell Agreement

A Buy-Sell Agreement is a document used when a company wishes to make an agreement with the owners of the company on how their interest in the company, called “Ownership Units,” may be sold or transferred. These documents govern what happens in various situations, including if an owner wants to voluntarily sell their ownership in the company during their lifetime. The company can be of various forms – a corporation, LLC, partnership, etc. – the same types of questions will be asked.

This document will likely be filled out towards the beginning of a company’s life. In that case, the company would require all of the owners to sign and if they refused, they likely wouldn’t be able to become an owner.

The document can be filled out at any time, however, it does not have to be at the beginning of the company’s life. If it is signed later, all of the owners must agree to sign. If all of the owners of the company don’t agree on the terms, this document would not be executed. It cannot be signed by a few owners and not by others.

Here, the main points are to ensure that each of the owners has been made aware of the restrictions on their sale or transfer of ownership units. This document covers multiple different scenarios which may arise.

This document should be used in conjunction with documents that are filled out at the start of company’s life and cover its operations, such as a Shareholder’s Agreement for corporations, an LLC Operating Agreement, or a Partnership Agreement.

How to use this document

This document can be used when a company, through its owners, would like to establish a formal written agreement for how and if the owners may sell their ownership units. This document will likely be kept on file with both the company itself and the individual owners, to each have a record of what was agreed to.

Here, questions will be asked about the identity of the company, as well as what type of company it is, and where it is formed. Then each of the owners’ names will be entered. Most importantly, this document will ask about various different situations and how ownership units of the company will be handled in those situations, such as the involuntary transfer of ownership units, the termination of an employee-owner, the death of an owner, the retirement of an owner, or if an owner would like to sell or transfer ownership units voluntarily during their lifetime.

Please keep in mind that this form requires not only signatures from all of the owners when it is filled out, but also the spouses of married owners. This is done to ensure the spouses of married owners are aware of the restrictions on their spouse’s ownership units (which is a form of property).

Applicable law

Buy-Sell Agreements are subject to the laws of individual states. There is no one federal law covering these documents, because each individual state governs the businesses formed within that state, whether the business is an LLC, corporation, partnership or other.

How to modify the template

You fill out a form. The document is created before your eyes as you respond to the questions.

At the end, you receive it in Word and PDF formats for free. You can modify it and reuse it.

Guides to help you

Other names for the document: Buy and Sell Agreement, Buyout Agreement, Corporation Buy and Sell Agreement, Corporation Buy-Sell Agreement, LLC Buy and Sell Agreement

About the template

Last revision: 05/28/2021

Size: 9 to 13 pages

Available formats: Word and PDF

How does it work?

1. Choose this template

2. Complete the document

Answer a few questions and your document is created automatically.

3. Save – Print

Your document is ready! You will receive it in Word and PDF formats. You will be able to modify it.

Business Sale Agreement

A Business Sale Agreement, also sometimes called a Business Purchase Agreement, is a document which the seller of a company and their chosen buyer can enter into when an entire business is being sold. Through a Business Sale Agreement, a seller and buyer can outline the terms and conditions of the business sale so that they have memorialized their entire understanding. A Business Sale Agreement contains provisions about the basic logistics of the sale, like pricing information, of course, but also contains the information required for an equitable relationship between the parties, such as liability allocation.

A Business Sale Agreement is absolutely essential when two parties are discussing the sale and transfer of a business. Business sales can be structured through what is called an asset sale, which means that all of the assets of the business are sold, and therefore, control and ownership of the business is sold. They can also be structured through share sales, which means that all of the shares of the business are sold, and therefore, control and ownership is transferred. In a share sale, all of the shares of the business must be sold in order to transfer control.

A good Business Sale Agreement will have all of the details of the parties transaction written down, including, but not limited to obligations of the buyer and seller, employee transfer information, and what happens if the sale fails to go through.

How to use this document

This document can be used for a seller getting ready to enter into a relationship with a buyer to transfer a business, or for a buyer looking to purchase a business and needing an agreement to memorize that. In this document, pertinent identifying details will be entered, such as whether the parties are individuals or businesses (most often, in Business Sale Agreements, it is a company selling to a company, but of course, individuals may sell off their businesses, as well), and their respective addresses and contact information. The user will also input the most important characteristics of the agreement between the parties, like a description of how the sale will be structured, price information, and covenants (or promises) of the parties.

This Business Sale Agreement will help cover everything that needs to be addressed before the sale of the business goes through.

When this document is filled out, it should be printed and signed by the relevant parties, then retained by each signatory.

Applicable law

Business Sale Agreements in the United States are generally subject to specific state laws, but may also be governed by the SEC, Securities and Exchange Commission, which oversees stock transactions in the United States.

How to modify the template

You fill out a form. The document is created before your eyes as you respond to the questions.

At the end, you receive it in Word and PDF formats for free. You can modify it and reuse it.

Guides to help you

Other names for the document: Agreement for Purchase of Business, Agreement for Purchase of Company, Agreement for Sale of Business, Agreement for Sale of Company, Agreement to Buy Business