A buy-sell agreement is a legally binding contract between business owners that outlines the terms for buying or selling a partner's ownership stake in the event of specific triggering events, like death or retirement, to facilitate a smooth transition and avoid disputes.
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Last Updated: January 6, 2026
A buy-sell agreement is a contract between two or more parties that gives the other parties the right to buy out the other’s interest. Commonly, business partners use buy-sell agreements to give the other partners an opportunity to buy the shares first. This helps encourage internal ownership of the company before bringing in a new partner.
Typically, partners that enter into a buy-sell agreement create the agreement long before the terms of the agreement actually come into play. Often, the partners will create and sign this agreement when they first start the business or when someone new joins the company.
Buy-sell agreements are a useful way for business members to maintain and control the current ownership of the business. For example, suppose that four friends start a corporation together, and each has a 25% ownership interest in the company. A year later, one of the friends decides to leave the business and wants to sell their shares. With a buy-sell agreement, the remaining members of the corporation have the option to buy the departing member’s shares before anyone else does, keeping the business ownership within the original group.
No two buy-sell agreements will be exactly the same; every business that writes one gets to create its own. That said, there are some common inclusions that many businesses include in their agreements. Here are some of the common ones:
Close corporations have a vested interest in maintaining their close corporation status. Because of this, these companies may impose additional restrictions on who can purchase the shares, the price at which they can be bought, and the total amount of ownership any one shareholder can hold.
Events that may trigger a buy-sell agreement include:
This isn’t an exhaustive list, though; the parties have the flexibility to decide what events they would like to trigger the agreement.
Here are some buy-sell agreement advantages:
It can be hard to know what a good price will be for the shares in the future. One of the buy-sell agreement disadvantages is that what seemed like a fair value of the shares at the time is no longer the case. To counter this, parties can use a formulaic approach to determine the value of the shares. For example, they can say that parties can purchase the shares for the fair market value at the time of the triggering event or the purchased value, whichever is greater.
Buy-sell agreements are a contract between two or more shareholders in a business. Under the contract, certain parties can purchase a departing member’s shares in a company at a specified price.
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Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. For specific questions about any of these topics, seek the counsel of a licensed professional.
Written by ZenBusiness Editorial Team
The ZenBusiness Editorial Team has more than 20 years of combined small business publishing experience and has helped over 850,000 entrepreneurs launch and grow their companies. The team’s writers and business formation experts are dedicated to providing accurate, practical, and trustworthy guidance so business owners can make confident decisions.
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