Full Definition
A buy-sell agreement is a contract between co-owners of a business that establishes the terms under which an owner's interest can or must be bought or sold when a triggering event occurs (death, disability, retirement, divorce, bankruptcy, or voluntary departure). The agreement defines the valuation method, payment terms, and funding mechanism. Life insurance is the most common funding vehicle because it provides immediate liquidity at the exact moment it's needed. Without a buy-sell agreement, a deceased owner's interest passes to heirs who may have no interest in or ability to run the business.
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