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Buy-Sell Agreement Contract



How a Buy-Sell Agreement Protects Your Business

A buy-sell agreement is essential for any business owner. By using a buy-sell contract, you can make sure the business stays afloat, avoid conflicts and litigation, or loss of profits and customer goodwill, in the event that one of the owners transfers his or her interest. A buy-sell plan for a business can protect your business when an owner sells an interest, in whole or in part. It is a vital contract template to use when you plan a business or form a partnership agreement.

When a Buy-Sell Agreement Template is Needed

A buyout can occur for unexpected reasons. Sale of a business interest can be triggered in the following circumstances:

  • Death
  • Disability
  • Bankruptcy
  • Divorce
  • Retirement
  • Internal disagreements
  • Desire to sell to a third party

Important Considerations in a Sample Contract

When selling a business interest, there are certain basic terms that need to be specified.

Who will the contact to purchase the business interest be given to? You will want to make sure that control of the company stays with those who are qualified and have the best interests of the company in mind. Surviving heirs and others may not be the best business partners, so there needs to be some type of restriction in the agreement to purchase to ensure that remaining owners don't lose control over the company. The contract may provide for remaining owners or business to match a third party's offer, or have the right to buy the interest, according to a specified valuation and payment method.

How will the contract to purchase be funded? Buy-sell agreement forms often provide that life insurance will be purchased, so that the proceeds can be used to buy the selling owner's interest. The contract needs to specify who the policyholder and beneficiaries will be, and who will pay the premiums for the buy sell insurance. Tax considerations will also affect the agreement contract, so an accountant should be consulted.

How will the agreement for sale determine the a fair price for the interest being sold? The method of valuation and how an appraisal will be conducted need to be described. Valuation of the business needs to take current conditions into account, so a fixed book value may not determine a fair price. A sample agreement may base valuation on capitalization of earnings, discounted cash flow, sale-multiple valuation, or other methods, depending on what's most appropriate for the type of entity involved.

US Legal Forms offers buy-sell agreement forms and packages that are professionally drafted to fit any type of company. Download a sample agreement template now to ensure control over your company, continuity of operations, and avoid disputes when ownership changes occur.