A Buy-Sell Agreement is a legally binding contract that outlines how a business will be transferred in the event of certain triggering events, such as the death, disability, or retirement of an owner. This agreement helps ensure that the business continues to operate smoothly and that the interests of the remaining owners and the departing owner are protected.

Characteristics:
– Ownership Transfer: Specifies how ownership interests will be transferred upon triggering events.
– Valuation Method: Outlines the method for valuing the business or ownership interest, ensuring fair compensation.
– Funding Mechanism: Details how the purchase will be financed, often through life insurance or savings.
– Triggering Events: Lists events that will activate the buy-sell provisions, such as death, disability, or voluntary exit.
– Restrictions: May include restrictions on who can buy the ownership interest, ensuring it remains within a defined group.

Examples:
– A partnership agreement that states if one partner passes away, the remaining partners will buy out the deceased partner’s share at a pre-determined price.
– A corporation that has a buy-sell agreement funded by life insurance policies on each owner, ensuring that in the event of an owner’s death, the policy proceeds are used to buy the deceased owner’s shares.