Starting and growing a business involves careful planning—choosing the right partners, securing financing, and building a long-term vision. One critical issue that often gets overlooked, however, is what happens when an owner needs or wants to exit the business. Buy-sell agreements are designed to address that exact scenario and can play a key role in protecting both the business and its owners.
Rather than assuming something will go wrong, a buy-sell agreement helps business owners prepare responsibly for the future.
What Is a Buy-Sell Agreement?
A buy-sell agreement is a legally binding contract that outlines what happens to a business owner’s interest if certain triggering events occur. Common triggering events include retirement, disability, death, divorce, bankruptcy, or a voluntary departure from the company.
At its core, a buy-sell agreement answers important questions before emotions or conflicts arise, including:
- Who may purchase an owner’s interest
- When a sale is required or permitted
- How the ownership interest will be valued
- How the purchase will be funded
Clear answers to these questions help reduce uncertainty and protect the long-term stability of the business.
Why Buy-Sell Agreements Matter
Without a buy-sell agreement in place, business owners may find themselves facing unexpected and difficult situations—such as being forced into business with a former partner’s spouse, heirs, or creditors. These scenarios can lead to operational disruptions, strained relationships, and costly legal disputes.
A properly structured buy-sell agreement can help:
- Maintain continuity of the business
- Protect owners from unwanted third-party involvement
- Establish a fair and predictable valuation process
- Reduce the risk of disputes and litigation
- Preserve the value of the business for all parties
For closely held businesses, partnerships, and family-owned companies, these agreements are especially important.
Common Types of Buy-Sell Agreements
Buy-sell agreements are typically structured in one of several ways, depending on the size and goals of the business:
Cross-Purchase Agreements
The remaining owners purchase the departing owner’s interest. This approach is often used when there are a small number of owners.
Entity (Redemption) Agreements
The business itself buys back the departing owner’s interest, which can simplify the process for companies with multiple owners.
Hybrid Agreements
These agreements combine aspects of both structures, allowing flexibility depending on the circumstances.
Each approach carries different legal and financial considerations, making it important to work with experienced legal counsel when drafting or reviewing an agreement.
Key Issues a Buy-Sell Agreement Should Address
While no two agreements are exactly alike, many include provisions related to:
- Events that trigger a buyout
- Methods for valuing ownership interests
- Payment terms and funding options
- Restrictions on transferring ownership
- Dispute resolution procedures
Careful drafting in these areas can help prevent misunderstandings and protect everyone involved.
How Rogers Sevastianos & Bante Can Help
Buy-sell agreements are not just legal documents—they are strategic planning tools. At Rogers Sevastianos & Bante, the attorneys understand the complexities involved in business ownership and the importance of forward-thinking legal planning. Whether you are forming a new business, adding partners, or reviewing an existing agreement, working with experienced counsel can help ensure your interests are protected.
If you own a business or are entering into a partnership, now is the time to evaluate whether a buy-sell agreement is right for your situation. Reaching out to Rogers Sevastianos & Bante can help you gain clarity, identify potential risks, and plan proactively for the future.
Take the Next Step
Planning for ownership transitions today can prevent serious challenges tomorrow. If you have questions about buy-sell agreements or want to discuss your business planning options, contact Rogers Sevastianos & Bante to schedule a consultation and take the next step toward protecting your business.
Disclaimer: The information in this blog is for general informational purposes only and does not constitute legal advice. Every legal situation is unique, and you should consult an attorney for personalized guidance on your specific circumstances.