TLDR:
A buy-sell agreement is a legally binding contract among co-owners of a business that governs how an owner’s stake will be transferred (or bought out) upon triggering events like death, disability, retirement, or departure, ensuring continuity and clear ownership transitions.
Trigger Events
A well-drafted buy-sell agreement specifies the events that trigger a forced or optional buyout: death of an owner, permanent disability, voluntary departure from active management, termination for cause, divorce (to prevent shares from passing to a non-active spouse), bankruptcy of an owner, or breach of restrictive covenants. Each trigger may have different valuation methods, payment terms, and remaining-owner rights.
Valuation Mechanisms
Valuation is the most contested part of a buy-sell agreement. Common methods include: fixed-price agreements (updated periodically), formula-based valuations (e.g., revenue or EBITDA multiples), independent appraisal at the time of triggering event, or a hybrid approach. Each method has trade-offs: fixed prices are simple but become stale; formulas are predictable but rigid; appraisals are accurate but slow and expensive.
Funding the Buyout
A buy-sell agreement is only effective if the buying party can actually pay. Common funding mechanisms include life-insurance policies (cross-purchase or entity-redemption structures), sinking funds, installment payment terms over 3-5 years, and seller financing with collateral. For private companies of meaningful size, an underfunded buy-sell can leave families and remaining owners in a stalemate at the worst possible moment.
Tax and Estate Considerations
Buy-sell agreements have significant tax consequences for both buyer and seller and frequently interact with estate planning structures. Cross-border ownership adds further complexity — Turkish residents holding shares in foreign entities, or vice versa, should structure the agreement with tax counsel in both jurisdictions.