Buy -- sell agreement - wikipedia Buy -- sell agreement This article needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. ( December 2013 ) A buy -- sell agreement, also known as a buyout agreement, is a legally binding agreement between co-owners of a business that governs the situation if a co-owner dies or is otherwise forced to leave the business, or chooses to leave the business. It may be thought of as a sort of premarital agreement between business partners / shareholders or is sometimes called a `` business will ''. An insured buy -- sell agreement ( triggered buyout is funded with life insurance on the participating owners ' lives ) is often recommended by business - succession specialists and financial planners to ensure that the buy -- sell arrangement is well - funded and to guarantee that there will be money when the buy -- sell event is triggered. Clauses A buy -- sell agreement consists of several legally binding clauses in a business partnership or operating agreement or a separate, freestanding agreement, and controls the following business decisions : Who can buy a departing partner 's or shareholder 's share of the business ( this may include outsiders or be limited to other partners / shareholders ) ; What events will trigger a buyout, ( the most common events that trigger a buyout are : death, disability, retirement, or an owner leaving the company ) and ; What price will be paid for a partner 's or shareholder 's interest in the partnership and so on. Buy -- sell agreement can be in the form of a cross-purchase plan or a repurchase ( entity or stock - redemption ) plan. For greater neutrality and effectiveness of the buy -- sell arrangement, the service of a corporate trustee is recommended. References Jump up ^ de Frutos, M. - A. and Kittsteiner, T. ( 2008 ), Efficient partnership dissolution under buy - sell clauses. The RAND Journal of Economics, 39 : 184 -- 198. doi : 10.1111 / j. 1756 - 2171.2008. 00009. x Private equity and venture capital Basic investment types Buyout Venture Mezzanine Growth Secondaries Equity co-investment History History of private equity and venture capital Early history of private equity Private equity in the 1980s Private equity in the 1990s Private equity in the 2000s Terms and concepts Buyout Financial sponsor Management buyout Divisional buyout Buy -- sell agreement Leveraged recapitalization Dividend recapitalization Venture Angel investor Business incubator Post-money valuation Pre-money valuation Seed money Startup company Venture capital financing Venture debt Venture round Structure Private equity firms and funds Limited partnership Limited liability company Carried interest Management fee Publicly traded private equity Business Development Company Venture capital trust Private investment in public equity ( PIPE ) Pledge fund Investors Corporations Institutional investors Pension funds Insurance companies Fund of funds Endowments Foundations Investment banks Merchant banks Commercial banks High - net - worth individuals Family offices Sovereign wealth funds Crowdfunding Related financial terms AUM Cap table Capital call Capital commitment Capital structure Distribution waterfall EBITDA Envy ratio High - yield debt IPO IRR Leverage Liquidation preference M&A PME Taxation of private equity and hedge funds Undercapitalization Vintage year Private equity and venture capital investors Private equity firms Venture capital firms Angel investors Portfolio companies Corporate finance and investment banking Capital structure Convertible debt Exchangeable debt Mezzanine debt Pari passu Preferred equity Second lien debt Senior debt Senior secured debt Shareholder loan Stock Subordinated debt Warrant Transactions ( terms / conditions ) Equity offerings At - the - market offering Book building Bookrunner Corporate spin - off Equity carve - out Follow - on offering Greenshoe Reverse Initial public offering Private placement Public offering Rights issue Seasoned equity offering Secondary market offering Underwriting Mergers and acquisitions Buy side Control premium Demerger Divestment Drag - along right Management due diligence Managerial entrenchment Minority discount Pitch book Pre-emption right Proxy fight Post-merger integration Sell side Shareholder rights plan Special - purpose entity Special situation Squeeze out Staggered board of directors Stock swap Super-majority amendment Tag - along right Takeover Reverse Tender offer Leverage Debt restructuring Debtor - in - possession financing Financial sponsor Leveraged buyout Leveraged recapitalization High - yield debt Private equity Project finance Valuation Accretion / dilution analysis Adjusted present value Associate company Business valuation Conglomerate discount Cost of capital Weighted average Discounted cash flow Economic Value Added Enterprise value Fairness opinion Financial modeling Free cash flow Free cash flow to equity Market value added Minority interest Modigliani -- Miller theorem Net present value Pure play Real options Residual income Stock valuation Sum - of - the - parts analysis Tax shield Terminal value Valuation using multiples List of investment banks Outline of finance Retrieved from `` https://en.wikipedia.org/w/index.php?title=Buy -- sell_agreement&oldid = 746377394 '' Categories : Mergers and acquisitions Hidden categories : Articles needing additional references from December 2013 All articles needing additional references Talk About Wikipedia Add links This page was last edited on 27 October 2016, at 01 : 36. 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Question: what is a buy sell agreement life insurance
Answer: a legally binding agreement between co-owners of a business that governs the situation if a co-owner dies or is otherwise forced to leave the business, or chooses to leave the business