A buy-sell agreement is a formal, legally binding plan for disposing of a business interest at a triggering event such as death, disability or retirement.

Basically, a buy-sell agreement obligates one party to sell his or her interest in the business at an agreed upon price (or using an agreed-upon method for determining the price), and obligates another party or parties to buy at that price (or the price set using the valuation method named in the contract). Business Valuation Methods are described later in this section.

Buy-sell agreements must be drawn up by a qualified attorney. Because wording may vary from state to state, prototype or sample agreements should be carefully reviewed by the attorney before use.

Objectives

Buy-sell agreements can meet a variety of business and personal planning objectives, including:

• Guaranteeing a ready market for an ordinarily non-liquid business interest.
• Providing for the orderly transfer (sale or retention) of the business as a going concern.
• Pre-establishing a fair purchase price or agreeable pricing formula.
• Determining the value of a business for estate tax purposes.
• Preventing the forced sale of assets to pay a deceased owner's estate settlement costs.
• Providing financial support in the event of a long-term disability that forces the businessowner to step down.
• Converting a business interest to cash to provide a ready source of retirement income.
• Providing security and peace of mind to the principals, their families and their employees.
• Assuring creditors that the business can be continued after the owners' death, disability or retirement.

Without a specific business continuation plan, the death, disability or retirement of a businessowner or professional practitioner can have widespread, devastating effects. While the exact form of buy-sell agreement will vary, the market for business continuation planning includes all types of business organizations.

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