Why Every Business Owner Needs a Buy-Sell Agreement

Owning a business comes with more than just day-to-day operations — it also means planning for the unexpected. One of the most critical but often overlooked tools for business continuity and succession is a buy-sell agreement.

What Is a Buy-Sell Agreement?

A buy-sell agreement is an agreement between co-owners of a business that governs what happens to an owner’s interest in the company if they leave the business, become incapacitated, retire, go through a divorce, or pass away. Additionally, it can address voluntary exits, such as when an owner simply wants to sell their share.

Risks without a Buy-Sell Agreement

Without a buy-sell agreement in place, a business may face uncertainty and conflict during a transition. A well-drafted buy-sell agreement will substantially reduce the likelihood of the following business succession issues:

Ownership Disputes: Without a clear agreement, disputes can arise over who has the right to purchase a departing owner’s interest and at what price.

Unwanted Partners: An owner’s death or divorce could leave remaining partners in business with heirs, ex-spouses, or third parties who have no business experience or shared vision.

Valuation Challenges: Buy-sell agreements typically include a method for valuing the business, reducing the chance of conflict and litigation.

Lack of Liquidity / Funding the Purchase: Many buy-sell agreements are backed by life insurance or other funding mechanisms to ensure the remaining owners or the business itself can afford to buy out the departing owner’s interest.

Common Types of Buy-Sell Agreements

Cross-Purchase Agreement: The remaining owners buy out the departing owner’s share.

Redemption Agreement: The business itself buys back the departing owner's interest.

Hybrid Agreement: Combines elements of both, allowing either the business or the other owners to purchase the interest.

Protecting the Business and Its Legacy

Whether you're a co-owner of a family business, a professional practice, or a growing startup, a properly drafted buy-sell agreement provides clarity, reduces risk, and protects the business you’ve worked so hard to build.

Drafting a quality buy-sell agreement can be challenging due to variety of issues that it needs to address. At Poole Shaffery we help business owners craft customized buy-sell agreements that reflect their goals, protect their interests, and provide for smooth transitions. If your business doesn’t yet have one — or if it’s been years since yours was reviewed — now is the time.