Richardson, and Gelinas, LLP A buy-sell agreement, as I will use the phrase in this article, is an agreement to purchase or sell a business interest at a determinable price and time, and on predetermined terms. The purchase or sale may be mandatory or optional, and the agreement may give sale or purchase rights to one party or to all of the parties. This should not be confused with transfer restrictions, which may or may not be combined with a buy-sell arrangement. I have done so countless times, for reasons I will get into later. Before I do, and at the risk of offending my fellow professional advisors and being branded a fool, permit me to tell you why you may not want one.
Real life has a way of trumping the best plans.
A family member with equity in your business may become ill or disabled. For family or other reasons, you may not want, or be able, to buy his interest when he becomes disabled, and you may decide to continue his compensation and benefits long after you would do the same for a non-owner, unrelated employee. Or, the value of your business may grow faster than any funding mechanism you can afford to enable you to purchase a substantial interest from another owner. Your business may not have the cash flow to prefund a buy-out or to honor its commitment to buy out a fellow owner when the time comes. Or, you may have children to whom you might like to pass your interest in the business, but it is too soon to be sure whether they are interested or capable.