Planning topic
Buy-Sell Agreements
When a business has more than one owner, a buy-sell agreement sets out what happens to an owner’s share if they retire, leave, become disabled, or die: who may buy it, how the price is set, and how the purchase is paid for.
Settling those questions while every owner is healthy and at the table spares partners and families from deciding them under pressure. Without an agreement, a share can pass to a spouse or heir who has never worked in the business, and the remaining owners may have no clear way to buy it back.
What owners usually work through
- Which events trigger a sale: retirement, leaving the business, disability, divorce, or death
- Who buys the share: the other owners, the company itself, or a combination
- How the price is set, and how often that value is brought up to date
- Where the money for the purchase comes from when the time arrives
- How the agreement fits with each owner’s own estate plan
Common questions
What is a buy-sell agreement?
It is a contract among the owners of a business, and sometimes the business itself, that decides in advance what happens to an owner’s share when certain events occur. It names who may buy the share, how the price is figured, and how the purchase will be paid for.
What is the difference between a cross-purchase and an entity-redemption agreement?
In a cross-purchase agreement, the remaining owners buy the departing owner’s share themselves. In an entity-redemption agreement, the company buys the share back. The two work differently for taxes and accounting, which is why your CPA and attorney should weigh in on the choice.
How is the price of an owner’s share usually set?
Agreements commonly use a value the owners agree on and update on a schedule, a formula tied to the company’s books, or an outside appraisal when the event happens. A value that is never updated is one of the most common problems owners find when they review an old agreement.
How is the purchase paid for?
Owners look at cash the business sets aside, payments over time, borrowing, and insurance on the owners’ lives or against disability. Many use a mix. Which fits depends on the business, the owners, and what the agreement requires.
Buy-Sell Agreements near you
Trino talks with business owners across the Houston area. Each page below covers the same questions for owners in that community.
General education, not advice — talk with Trino and your own CPA or attorney before making a decision. Nothing is sold on this site.