A buy-sell agreement is a legally binding contract between co-owners that governs what happens to a shareholder’s interest if they die, become disabled, retire, or want to exit, preventing ownership disputes before they arise.

Without a buy-sell agreement, the departure of a co-owner, voluntarily or otherwise, can create a crisis. A deceased owner’s shares pass to their estate, which may have no interest in the business and every interest in liquidity. A disabled owner may be unable to contribute but entitled to their full economic interest. A departing owner who wants out may have no mechanism to compel a buyout at a fair price.

The buy-sell agreement defines the triggering events, the valuation methodology, the payment terms, and the funding mechanism, typically life or disability insurance on each owner. It is the document that prevents a business dispute from becoming a family dispute, and a family dispute from becoming a legal one. For multi-owner businesses, it is not optional infrastructure. It is the foundation of a stable ownership structure.

A buy-sell agreement without funding is a plan without a mechanism. See how Wefinx approaches exit planning.

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