Buy-Sell Agreement Template

Set who can buy an owner's share, at what price, and on what triggers, before you ever need it.

Introduction

A buy-sell agreement is a contract among the owners of a business that decides in advance who may buy an owner's share, at what price, and on what triggers such as death, disability, divorce, retirement, or a voluntary exit. It keeps ownership inside the group, gives the remaining owners a clear path to buy, and prevents a forced sale or a dispute when someone leaves. The core terms are the same nationwide: the structure (cross-purchase, entity redemption, or a hybrid), the triggering events, the valuation method, and how the buyout is funded. A few rules do vary by state, most notably spousal consent in community-property states and how a non-compete on a departing owner is enforced, so check the version for your state.

Key Things to Know

1
A buy-sell agreement is a binding contract among co-owners that fixes who can buy a departing owner's interest, the price or valuation method, and the triggering events, so a death, divorce, or exit does not force the business into a dispute or a sale to an outsider.
2
There are three common structures. In a cross-purchase the remaining owners buy the departing owner's share; in an entity redemption the business itself buys it back; a hybrid or wait-and-see agreement lets the parties choose at the time of the trigger.
3
Set the triggers explicitly. The usual ones are death, long-term disability, retirement, voluntary departure, divorce, and bankruptcy of an owner. Each trigger can have its own price and payment terms, so define them rather than leaving them to negotiation later.
4
Choose a valuation method and keep it current. Common methods are a fixed price the owners restate periodically, a formula such as a multiple of earnings, or an independent appraisal at the time of the trigger. Update the number at least once a year.
5
Fund the buyout before you need it. Owners commonly use life or disability insurance on each owner, a sinking fund, or installment payments, so the buyer has cash when a trigger occurs. Match the funding to the valuation so the price and the money available line up.
6
Some rules vary by state. Community-property states may require a spouse's consent or notice before an owner disposes of a community-property business interest, and states differ on whether a non-compete on a departing owner is enforceable. See the version for your state for the specific rule.
7
No notarization, witnesses, or government filing is required in most states. A buy-sell agreement is valid as a signed writing. Keep the signed agreement with the company records, note any transfer restriction on the share certificates, and review it after major changes. Attorney review is available.

Key decisions before you file

Before you file a Buy-Sell Agreement in Alabama, a few decisions shape the document: which option to choose and what each one means. The Buy-Sell Agreement guide walks through them.

Open the Buy-Sell Agreement guide

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Buy-Sell Agreement

This Buy-Sell Agreement (the "Agreement") is made on [date] among [Company name], a [state] [entity type] (the "Company"), and the persons who own interests in the Company and sign below (each an "Owner" and together the "Owners").

1. Purpose

The Owners want to keep ownership of the Company within the current group, provide a fair and orderly way to buy an Owner's interest when a triggering event occurs, set the price and payment terms in advance, and give each Owner a ready market for the interest. This Agreement controls the transfer of every ownership interest in the Company.

2. Transfer Restrictions

No Owner may sell, assign, pledge, or otherwise transfer all or any part of an ownership interest except as this Agreement allows. Any attempted transfer that violates this Agreement is void. Before any voluntary transfer to an outside party, the selling Owner must first offer the interest to the Company and then to the other Owners on the terms in Section 5. The Company shall note this restriction conspicuously on each ownership certificate.

3. Triggering Events

An Owner's interest becomes subject to purchase on any of the following: (a) death; (b) permanent disability, as defined in Section 9; (c) retirement or voluntary withdrawal; (d) termination of employment or service; (e) divorce, to the extent an interest would pass to a former spouse; (f) bankruptcy, insolvency, or an assignment for the benefit of creditors; or (g) an attempted transfer in violation of this Agreement.

4. Purchase Structure

The Owners elect one of the following, as stated in the Schedule: (a) Cross-Purchase, in which the remaining Owners buy the departing Owner's interest in proportion to their existing interests; (b) Redemption, in which the Company buys the interest; or (c) Wait and See, in which the Company has the first option and the remaining Owners may buy any interest the Company does not.

5. Right of First Refusal

If an Owner receives a bona fide written offer to buy an interest, the Owner shall give the Company and the other Owners written notice with the offer terms. The Company, and then the other Owners, may buy the interest on the same terms within [number] days. If neither buys, the Owner may complete the sale to the third party on those terms, and the buyer takes the interest subject to this Agreement.

6. Purchase Price and Valuation

The purchase price is the value of the interest determined by the method the Owners select in the Schedule: (a) a fixed price the Owners restate at least once each year; (b) a formula, such as a multiple of earnings or book value; or (c) an appraisal by a qualified independent appraiser as of the valuation date. The Owners should review and update the value regularly so the price stays realistic.

7. Funding

The buyout may be funded by life insurance or disability insurance on each Owner, a sinking fund, installment payments by the buyer, or a combination. Where insurance funds the purchase, the Schedule lists each policy, its owner, and its beneficiary, and the parties shall keep the coverage in force and match it to the current value.

8. Closing and Payment

The closing occurs within [number] days after the price is fixed. At closing, the buyer pays the price in cash or under the payment terms in the Schedule (for example, a down payment with the balance paid over [number] years with interest at [rate]), and the selling Owner delivers the interest free of liens and signs the documents needed to transfer it.

9. Disability

"Permanent disability" means an Owner's inability, because of illness or injury, to perform the Owner's regular duties for [number] consecutive months, determined as the Schedule provides. On permanent disability, the Owner's interest is purchased under the same terms that apply to the other triggering events.

10. General

This Agreement binds the Owners and their heirs, estates, and successors. It may be amended only by a writing signed by all Owners. If a court finds any provision unenforceable, the rest remains in effect. This Agreement is a signed writing and does not require notarization unless the Owners choose to notarize it. Attorney review is available.

Signatures.

Company: ______________________ Date: __________

Owner: ______________________ Date: __________

Complete the bracketed items and the Schedule for your Company. This template is general information, not legal advice; attorney review is available. For state-specific requirements, see the version for your state.

Alabama Requirements for Buy-Sell Agreement

Statute of Frauds Compliance (Alabama Code § 8-9-2)

The agreement must be in writing to be enforceable as it involves the sale of business interests, which falls under Alabama's Statute of Frauds requiring certain contracts to be written.

Business Entity Compliance (Alabama Business and Nonprofit Entities Code § 10A-1-1.01 et seq.)

The agreement must comply with Alabama's business entity laws based on the type of entity (corporation, LLC, partnership) and ensure consistency with the entity's governing documents.

Securities Law Compliance (Alabama Securities Act § 8-6-1 et seq.)

Transfer of business interests may constitute securities transactions requiring compliance with both federal and Alabama securities laws, including potential registration or exemption requirements.

Federal Securities Compliance (Securities Act of 1933, 15 U.S.C. § 77a et seq.)

Transfers of business interests may be subject to federal securities laws, requiring proper disclosures, potential registration, or qualifying for exemptions.

Contract Formation Requirements (Alabama common law of contracts)

The agreement must meet Alabama's requirements for valid contract formation, including offer, acceptance, consideration, legal purpose, and competent parties.

Tax Implications Disclosure (Internal Revenue Code § 1001 et seq.)

The agreement should address federal tax implications of business transfers, including potential capital gains taxes, basis adjustments, and other tax consequences.

Alabama Tax Compliance (Alabama Income Tax Law § 40-18-1 et seq.)

The agreement must address Alabama state tax implications for business transfers, including potential state income taxes and transfer taxes.

Valuation Methodology (Alabama common law of contracts)

The agreement must establish a clear, fair market valuation method that complies with Alabama contract law principles and is sufficiently definite to be enforceable.

Life Insurance Provisions (Alabama Insurance Code § 27-14-3)

If life insurance is used to fund the buy-sell agreement, provisions must comply with Alabama insurance laws regarding insurable interest and policy ownership.

Disability Provisions (Alabama Disability Law § 21-7-1 et seq.)

Provisions addressing business transfers upon disability must comply with Alabama's disability laws and provide clear, objective standards for determining qualifying disability.

Americans with Disabilities Act Compliance (Americans with Disabilities Act, 42 U.S.C. § 12101 et seq.)

Disability provisions must not violate federal ADA requirements regarding discrimination against disabled individuals in business relationships.

Spousal Consent Requirements (Alabama Marital Property Law § 30-4-1 et seq.)

In Alabama, spousal consent may be required for certain business transfers, particularly in community property situations or where marital assets are involved.

Estate Planning Integration (Alabama Probate Code § 43-8-1 et seq.)

The agreement should address integration with estate planning and comply with Alabama probate laws for business interest transfers upon death.

Federal Estate Tax Considerations (Internal Revenue Code § 2001 et seq.)

The agreement must address federal estate tax implications for business transfers upon death, including potential valuation discounts and payment provisions.

Right of First Refusal Provisions (Alabama common law of contracts)

Any right of first refusal provisions must comply with Alabama contract law requirements for such provisions, including reasonable time frames and clear procedures.

Non-Compete Provisions (Alabama Code § 8-1-190 et seq.)

Any non-compete provisions must comply with Alabama's requirements for enforceable restrictive covenants, including reasonable geographic scope, duration, and business interest protection.

Dispute Resolution Mechanisms (Alabama Arbitration Act § 6-6-1 et seq.)

Arbitration or mediation provisions must comply with both Alabama law and the Federal Arbitration Act regarding enforceability and procedural requirements.

Federal Arbitration Act Compliance (Federal Arbitration Act, 9 U.S.C. § 1 et seq.)

If the agreement includes arbitration provisions, they must comply with federal requirements for valid arbitration agreements affecting interstate commerce.

Operating Agreement/Bylaws Consistency (Alabama Business and Nonprofit Entities Code § 10A-5A-1.01 et seq. (LLCs) or § 10A-2-1.01 et seq. (corporations))

The buy-sell agreement must be consistent with and properly integrated into the company's operating agreement (for LLCs) or bylaws (for corporations) under Alabama law.

Deadlock Resolution Provisions (Alabama Business and Nonprofit Entities Code § 10A-1-1.01 et seq.)

Provisions addressing business deadlocks must comply with Alabama business law requirements for such mechanisms and provide clear, enforceable procedures.

Frequently Asked Questions

It is a contract among the owners of a business that sets who may buy an owner's interest, the price or valuation method, and the triggers such as death, disability, divorce, retirement, or a voluntary exit. It keeps ownership inside the group and prevents disputes when an owner leaves.

An operating agreement or bylaws set how the business runs day to day. A buy-sell agreement covers only ownership transitions: what happens to an owner's share on death, disability, divorce, or departure, how it is priced, and who may buy it. Many companies keep both.

In a cross-purchase, the remaining owners individually buy the departing owner's share, often funded by policies they hold on each other. In a redemption, the business itself buys the share back. A hybrid lets the parties decide which applies when the trigger happens. Each has different tax effects.

By the method the owners choose: a fixed price they restate periodically, a formula such as a multiple of earnings or book value, or an independent appraisal at the time of the trigger. Whatever the method, set it clearly and update it regularly so the price stays realistic.

Most owners fund it with life or disability insurance on each owner, a sinking fund set aside over time, or installment payments from the buyer after the trigger. The goal is to have cash available when it is needed, matched to the agreed valuation so the buyer can actually pay.

In most states, no. A buy-sell agreement is valid as a signed writing, with no notarization, witnesses, or government filing required. Keep the signed agreement with the company records and note any transfer restriction on the share certificates. A few state-specific rules may apply.

The core terms are the same everywhere, but some rules vary. Community-property states may require a spouse's consent or notice for a community-property business interest, and states differ on whether a non-compete on a departing owner is enforceable. Use the version for your state for the exact rule.