What is the purpose of a buy-sell agreement?
A buy-sell agreement is a document between business owners or partners that obligates a buyer and seller and sets the price of the transaction that is going to occur. In other words, if you and I are in business together and something happens to me, it obligates you to buy my shares from my estate and it obligates my family to sell to you. It’s a very, very important document. It puts everything in writing, and it minimizes areas of disputes and distractions that come along with the loss of a partner. How is value established with a buy-sell agreement? A business can have an appraisal done by a third party, or through that third party it can identify a formula like a percent of sales or revenues or income. That formula is made part of the buy-sell agreement so it is an ongoing, moving target. Sometimes parties will agree on a price that is good for 12 months. Then they revisit the issue and establish a new price, which is good for another 12 months, so the process is ongoing. How are b
