Buy-Sell Agreement Template

Q: What is a buy-sell agreement?

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.

Q: What is the difference between a buy-sell agreement and an operating agreement?

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.

Q: What is the difference between a cross-purchase and a redemption buy-sell agreement?

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.

Q: How is the business valued in a buy-sell agreement?

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.

Q: How is a buyout funded?

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.

Q: Does a buy-sell agreement need to be notarized?

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.

Q: Do buy-sell agreement rules vary by state?

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.

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.

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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 Alaska, 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.

Alaska Requirements for Buy-Sell Agreement

Corporate Authority and Compliance (Alaska Stat. § 10.06.010 et seq.)
The agreement must comply with Alaska Corporations Code, which governs the authority of corporations to enter into buy-sell agreements. This includes ensuring proper corporate authorization through board resolutions and adherence to the company's articles of incorporation and bylaws.
LLC Compliance (Alaska Stat. § 10.50.010 et seq.)
For Limited Liability Companies, the buy-sell agreement must comply with Alaska's LLC Act, which provides the statutory framework for operating agreements and transfer restrictions in LLCs.
Securities Law Compliance (Alaska Stat. § 45.55.010 et seq.; Securities Act of 1933)
The agreement must comply with both federal and Alaska securities laws if the transfer of business interests could be considered a securities transaction, including potential exemptions from registration requirements.
Contract Formation Requirements (Alaska common law; Alaska Stat. § 09.25.010 et seq.)
The agreement must satisfy Alaska's requirements for valid contract formation, including offer, acceptance, consideration, legal purpose, and capacity of the parties to contract.
Statute of Frauds (Alaska Stat. § 09.25.010)
Alaska's Statute of Frauds requires certain contracts to be in writing to be enforceable, including contracts that cannot be performed within one year and contracts for the sale of interests in land.
Life Insurance Provisions (Alaska Stat. § 21.42.020)
If the buy-sell agreement is funded by life insurance, it must comply with Alaska's insurance code regarding insurable interest requirements and policy ownership.
Estate Tax Considerations (26 U.S.C. § 2703)
The agreement must address federal estate tax implications, particularly for family businesses, including potential application of Internal Revenue Code Section 2703 regarding valuation of business interests for estate tax purposes.
Income Tax Treatment (26 U.S.C. § 301 et seq.)
The agreement must consider federal income tax consequences of various buy-sell structures (cross-purchase vs. redemption) and potential application of alternative minimum tax, accumulated earnings tax, and other tax provisions.
Alaska Business Corporation Act Compliance (Alaska Stat. § 10.06.358)
The agreement must comply with Alaska's restrictions on corporate distributions and stock redemptions, including solvency tests that prohibit distributions that would render the corporation insolvent.
Valuation Methodology (Alaska common law; Alaska Stat. § 10.06.630 (for dissenting shareholders))
Alaska courts generally enforce agreed-upon valuation methods in buy-sell agreements, but the agreement should specify a clear, fair market valuation methodology that will withstand judicial scrutiny.
Restrictive Covenants (Alaska common law)
Non-compete and non-solicitation provisions must comply with Alaska's reasonable restrictions standard, which evaluates geographic scope, duration, and protection of legitimate business interests.
Disability Provisions (42 U.S.C. § 12101 et seq.; Alaska Stat. § 18.80.220)
Provisions triggered by disability must comply with the Americans with Disabilities Act and Alaska's human rights laws prohibiting discrimination based on disability.
Dispute Resolution (9 U.S.C. § 1 et seq.; Alaska Stat. § 09.43.010 et seq.)
Arbitration provisions must comply with both the Federal Arbitration Act and Alaska's Uniform Arbitration Act, which govern the enforceability of arbitration agreements.
Marital Property Considerations (Alaska Stat. § 25.24.160)
The agreement should address Alaska's marital property laws, which may affect business interests in divorce proceedings, potentially requiring spousal consent to transfer restrictions.
Electronic Signatures (Alaska Stat. § 09.80.010 et seq.; 15 U.S.C. § 7001 et seq.)
The agreement may utilize electronic signatures in accordance with Alaska's Uniform Electronic Transactions Act and the federal E-SIGN Act.
Right of First Refusal (Alaska common law)
Provisions granting rights of first refusal must comply with Alaska contract law requirements for such provisions, including reasonable notice periods and clear procedures for exercise.
Deadlock Resolution (Alaska Stat. § 10.06.628 (corporations); Alaska Stat. § 10.50.405 (LLCs))
The agreement should include mechanisms for resolving business deadlocks that comply with Alaska's statutory provisions for judicial dissolution in cases of deadlock.
Fiduciary Duties (Alaska Stat. § 10.06.450 (corporations); Alaska Stat. § 10.50.135 (LLCs))
The agreement must address the fiduciary duties of directors, officers, and managers under Alaska law, including potential modifications of these duties as permitted by statute.
Choice of Law and Forum Selection (Alaska common law)
The agreement should include enforceable choice of law and forum selection provisions that comply with Alaska's requirements for such clauses.
Bankruptcy Considerations (11 U.S.C. § 365)
The agreement must address the impact of federal bankruptcy law on buy-sell provisions, as bankruptcy may override certain transfer restrictions.

Frequently Asked Questions

What is a buy-sell agreement?

What is the difference between a buy-sell agreement and an operating agreement?

What is the difference between a cross-purchase and a redemption buy-sell agreement?

How is the business valued in a buy-sell agreement?

How is a buyout funded?

Does a buy-sell agreement need to be notarized?

Do buy-sell agreement rules vary by state?

Introduction

Key Things to Know

Key decisions before you file

Customize your Buy-Sell Agreement Template with DocDraft

Buy-Sell Agreement

1. Purpose

2. Transfer Restrictions

3. Triggering Events

4. Purchase Structure

5. Right of First Refusal

6. Purchase Price and Valuation

7. Funding

8. Closing and Payment

9. Disability

10. General

Alaska Requirements for Buy-Sell Agreement

Corporate Authority and Compliance (Alaska Stat. § 10.06.010 et seq.)

LLC Compliance (Alaska Stat. § 10.50.010 et seq.)

Securities Law Compliance (Alaska Stat. § 45.55.010 et seq.; Securities Act of 1933)

Contract Formation Requirements (Alaska common law; Alaska Stat. § 09.25.010 et seq.)

Statute of Frauds (Alaska Stat. § 09.25.010)

Life Insurance Provisions (Alaska Stat. § 21.42.020)

Estate Tax Considerations (26 U.S.C. § 2703)

Income Tax Treatment (26 U.S.C. § 301 et seq.)

Alaska Business Corporation Act Compliance (Alaska Stat. § 10.06.358)

Valuation Methodology (Alaska common law; Alaska Stat. § 10.06.630 (for dissenting shareholders))

Restrictive Covenants (Alaska common law)

Disability Provisions (42 U.S.C. § 12101 et seq.; Alaska Stat. § 18.80.220)

Dispute Resolution (9 U.S.C. § 1 et seq.; Alaska Stat. § 09.43.010 et seq.)

Marital Property Considerations (Alaska Stat. § 25.24.160)

Electronic Signatures (Alaska Stat. § 09.80.010 et seq.; 15 U.S.C. § 7001 et seq.)

Right of First Refusal (Alaska common law)

Deadlock Resolution (Alaska Stat. § 10.06.628 (corporations); Alaska Stat. § 10.50.405 (LLCs))

Fiduciary Duties (Alaska Stat. § 10.06.450 (corporations); Alaska Stat. § 10.50.135 (LLCs))

Choice of Law and Forum Selection (Alaska common law)

Bankruptcy Considerations (11 U.S.C. § 365)

Frequently Asked Questions