What is a buy-and-sell agreement?
A buy-and-sell agreement (or buy-sell agreement) is a contract among co-owners of a company — typically founders, partners or shareholders — specifying how an owner’s interest is handled upon the occurrence of trigger events such as death, disability, divorce, bankruptcy, retirement, voluntary exit or for-cause termination.
The agreement may take the form of a cross-purchase (each owner buys the departing owner’s interest), redemption (the company buys the interest) or hybrid. Pricing mechanisms include fixed price, formula, appraisal or last-agreed value. Buy-sell agreements are critical risk management tools in closely-held companies.