What is a buy-and-sell agreement?
A buy-and-sell agreement (also called a buy-sell agreement or shareholder buy-sell) is a contract between business owners that governs the transfer of ownership interests when triggering events occur — death, disability, divorce, retirement, voluntary departure, or termination. The agreement establishes who can buy a departing owner’s shares, the price, the timing and the funding mechanism (typically life insurance for death triggers).
Common trigger events
- Death of an owner.
- Permanent disability.
- Voluntary retirement or departure.
- Termination of employment.
- Divorce (to prevent shares ending up with an ex-spouse).
- Bankruptcy of an owner.
- Deadlock on major decisions.
Common structures
- Cross-purchase agreement: remaining owners individually buy the departing owner’s shares.
- Stock redemption agreement: the company buys back the shares.
- Hybrid agreement: the company has the first right; owners step in if the company declines.
Pricing mechanisms
- Fixed price: agreed amount, updated periodically — simple but quickly stale.
- Formula: book value, multiple of EBITDA, agreed revenue multiplier.
- Independent appraisal: third-party valuation at trigger time.
- Most-recent funding round price: common in venture-backed companies.
Buy-sell mechanics that actually work
The clauses that decide buy-sell outcomes are the ones drafted while everyone is friends. Triggers: death, incapacity, exit of employment, deadlock, change of control of a corporate shareholder. Pricing: a formula or appraisal mechanism beats a fixed number that ages badly; Russian-roulette and Texas-shootout clauses solve deadlocks but need careful calibration where bargaining power is unequal. Funding: an obligation to buy without a funding source is a lawsuit — life-insurance-backed buyouts and instalment mechanics close the gap. Under Turkish law the architecture pairs the SHA’s obligations with articles-level transfer restrictions and call/put option mechanics, with attention to TTK limits on a company acquiring its own shares when the company is the buyer.