How to Write a Buy Sell Agreement

Often called a buyout agreement, a buy-sell agreement is a contract that partners in a business enter into that dictates how shares of the business may be sold or transferred. The agreement is generally invoked in the event of the death of a partner, bankruptcy, or when the business dissolves. As with all contracts, the buy-sell agreement is important because it determines how things will be handled in a difficult situation before the problem even arises. A buy-sell agreement is often entered into before the business begins and states how the business will be handled upon some stated event. The agreement is flexible, which means that you can agree to handle certain situations however you wish to, so long as the agreement is not for some illegal purpose.


  1. Image titled Write a Buy Sell Agreement Step 1
    Determine what to do when one partner decides to leave the company. If one of the partners decides to leave the company, decide how the company will handle this change. Decide whether the partner must give the rest of the partners the opportunity to purchase his shares, or whether the partner may sell his ownership to a third party.
    • Decide how the shares will be valued: will the selling partner be allowed to set his own price, or will you require that the company be appraised to determine the actual value?
    • In the case of a partner retiring, you need to determine whether the partner will be leaving the business (and thus selling his shares) or whether the partner will become less active in the company. In the former case, the retirement should be treated as discussed above. If the partner will become less active in the company, discuss if he or she will be able to be a company officer, or be involved in the management of the company. Also discuss whether the partner will continue to receive the same share of profits.
  2. Image titled Write a Buy Sell Agreement Step 2
    Decide how to handle the business upon the death of a partner. If one of the owners of the company dies, who owns the deceased owner’s shares? The buy-sell agreement takes away the guesswork in this situation. You may wish to agree that upon the death of an owner, the deceased owners must sell the shares back to the company. Or, you may allow the family members to retain ownership of the company. If you allow the family members of the deceased partner to retain ownership, you should determine what role(s) they will play in the company. Keep in mind that if allowed to retain the shares, the management of the company could change drastically. There are a number of questions that arise if you choose to allow the family to retain ownership, and for this reason many companies require the family to sell the shares back to the company.
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    Determine what to do when one partner gets a divorce. It may surprise you, but the divorce of one of the partners of the company may change the ownership of the company. Remember, ownership of a company can be considered property that will be divided upon divorce. Decide whether the shares of a partner will be able to be transferred to the former spouse of the partner. The questions that arise in the event of a divorce are similar to those asked in the previous step regarding the death of a partner. Typically, given the myriad of unknowns involved in allowing a former spouse to retain ownership of the partner’s shares, it is best to require the former spouse to sell the shares back to the company. Another way to handle this issue is to require the partner and spouse to sign an agreement stating that shares of the company are not to be transferred to the spouse on the dissolution of the marriage. In the latter case, it is imperative that the partner and spouse speak with an attorney about making this decision.
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    Decide how bankruptcy will affect the partnership. If one partner files for bankruptcy, the court may take into account that partner’s shares of the company and take them to satisfy the partner’s creditors. One way to handle this situation is to require the partners to formally notify the company in the event of a personal bankruptcy. In that instance, the notice will act as an offer to sell the bankrupt partners shares to the company. The purchase money will then be given to the bankrupt partners creditors and the company will avoid any further interruption from the bankruptcy.
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    Draft the agreement. These agreements are often drafted by a lawyer in order to ensure that they are enforceable and comply with the law. However, the company determines the substance of the agreement. Consider all of the previous steps before meeting with the lawyer so that you can give him or her a good idea of what you want the agreement to reflect. The agreement is drafted as a contract, and as such may contain some standard legal language to make it comply with the law, but it is generally written in easily understood language so that the partners are clear about its provisions. It should read like a formal understanding of the items discussed in the previous steps. Once drafted, all partners should sign the agreement so that it is enforceable. The very nature of the buy-sell agreement makes it valid for the length of the ownership of the business. To amend the agreement, for example if a new partner joins the company, your attorney should make the changes that you request, and all the partners should sign the new agreement.


  • Consult with a business advisor and/or a lawyer about what you put into your agreement. They may be able to help you discuss situations you might not have anticipated on your own.
  • There is no one correct way to make the decision of how to deal with the buying or selling of ownership. Small family-owned businesses will often make different decisions with regard to buy-sell agreements than larger non-related partnerships will. Decide what works best for your company.
  • While it may be difficult initially to discuss some of the items contemplated in this agreement, planning for unanticipated circumstances can often prevent the business from failing or relationships collapsing in the future. Without a buy-sell agreement, business partners often end up in courtrooms and sustaining personal financial losses.

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