What Is a Buyout, or Buy-Sell, Agreement?
Contrary to popular belief, a buy-sell agreement is not about buying and selling companies. It is a binding contract between business partners about the future ownership of the business. Because of this confusing terminology, we will use the term buyout agreement from now on. A buyout agreement can stand on its own or can be several provisions in your written partnership agreement that control the following business decisions: • whether a departing partner must be bought out • what price will be paid for the departing partner’s interest in the partnership • who can buy the departing partner’s share of the business (this may include outsiders or be limited to other partners), and • what other events may trigger a buyout. It may help to think of a buyout agreement as a sort of “prenuptial agreement” between you and your partners: Although you might think that your partnership will last as long as you all shall live, the buyout determines what will happen if things don’t go exactly as you
