What Are the Key Elements of a Buy Sell Agreement

For businesses looking to sell their assets or partners looking to buy each other out, a buy-sell agreement is a crucial legal document. Essentially, a buy-sell agreement outlines what will happen in the event of certain circumstances, such as a partner wanting to sell their shares or a business owner passing away. If you`re considering creating a buy-sell agreement, here are some key elements to include:

1. Purpose and Scope

Your buy-sell agreement should clearly state the purpose and scope of the agreement. This includes things like what is being sold (shares of a business, real estate, etc.), who the parties involved are, and what situations the agreement covers (i.e. death, disability, retirement, etc.)

2. Valuation

Next, it`s important to determine how the business or asset will be valued in the event of a sale. This can be done through an independent appraisal, by using a formula, or by simply agreeing on a set price beforehand.

3. Triggering Events

Your buy-sell agreement should outline the events that will trigger the sale of the business or asset. Common triggers include death, disability, retirement, or a partner wanting to sell their shares.

4. Restrictions on Transfers

To ensure that the business or asset remains in the control of the agreed-upon parties, your buy-sell agreement may include restrictions on transfers. For example, it may be stipulated that a partner cannot sell their shares to anyone outside of the partnership or that shares can only be sold with the approval of the other partners.

5. Funding Mechanisms

Finally, it`s important to decide how the sale will be funded. This can include things like life insurance policies, installment payments, or even setting aside funds in a trust.

In summary, a well-crafted buy-sell agreement can protect the interests of all parties involved and ensure a smooth transition in the event of a triggering event. By including the elements outlined above, you`ll be well on your way to drafting a comprehensive buy-sell agreement that serves the needs of your business or partnership.

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