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California Buy-Sell Agreement Template

The California rules that shape the document: community property spousal consent, the sale-of-business non-compete, and the Section 2000 buyout.

Introduction

A buy-sell agreement is a contract among the owners of a California business that settles in advance who can buy a departing owner's share, how it is priced, and which events trigger a buyout, such as death, disability, divorce, or a voluntary exit. In California, three rules shape the document beyond the national template: a spouse who manages a community-property business must give the other spouse prior written notice before disposing of substantially all of its assets (Family Code Section 1100(d)); a non-compete on a departing owner is enforceable only under the sale-of-business exception (Business and Professions Code Section 16601), because Section 16600 voids ordinary restraints; and Corporations Code Section 2000 lets a corporation or holders of 50 percent of the voting power avoid dissolution by buying out the moving parties at fair value, which your valuation clause should anticipate.

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Key Things to Know

  1. 1

    A California buy-sell agreement is a binding contract among the co-owners of a business 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. 2

    California is a community property state. If the business is substantially community personal property, the managing spouse may act alone but must give the other spouse prior written notice before selling or encumbering substantially all of it (Family Code Section 1100(d)). A spousal consent block prevents later challenges.

  3. 3

    A non-compete against a selling owner is enforceable in California only through the sale-of-business exception in Business and Professions Code Section 16601. A generic covenant is void under Section 16600, so the clause must tie the restriction to the sale of the owner's interest or goodwill and a specific geographic area.

  4. 4

    In California, Corporations Code Section 2000 lets a corporation or holders of 50 percent or more of the voting power avoid dissolution by purchasing the moving parties' shares for cash at fair value. Your valuation clause can set the method the parties prefer instead of California's liquidation-value default.

  5. 5

    In California, transfer restrictions bind a later buyer only if noted conspicuously on the share certificate, or the registered owner is notified for uncertificated shares (California Commercial Code Section 8204). Add the legend when your California company issues or endorses certificates.

  6. 6

    In California, no notarization, witnesses, or government filing is required. A buy-sell agreement is valid as a signed writing under California's statute of frauds (Civil Code Section 1624). Keep it with the company records and update the valuation periodically.

  7. 7

    Fund the California buyout before you need it. Owners commonly use life or disability insurance, a sinking fund, or installment payments so the agreed valuation can be paid, rather than leaving the price to a Section 2000 determination. Match the funding to your valuation.

Key decisions before you file

Before you file a Buy-Sell Agreement in California, 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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California Buy-Sell Agreement (Compact State Terms)

This compact set states the California-specific terms of a Buy-Sell Agreement. Use it together with the full national Buy-Sell Agreement template, which contains the general purchase, trigger, and closing provisions.

1. Governing Law. This Agreement is governed by the laws of the State of California, without regard to its conflict-of-laws rules.

2. Community Property; Spouse's Acknowledgment and Consent. Each married Owner acknowledges that an interest in the Company may be community property under California Family Code Section 760. Where an Owner operates or manages a business that is all or substantially all community personal property, that Owner has primary management and control but shall give the other spouse prior written notice before any sale, lease, exchange, encumbrance, or other disposition of all or substantially all of the personal property used in the business, as required by California Family Code Section 1100(d). The spouse of each married Owner signs the Spousal Consent below to acknowledge this Agreement, consent to its transfer restrictions, and waive any conflicting claim to the extent permitted by law.

3. Restrictive Covenant (Sale-of-Business Exception). Any covenant by a selling Owner not to compete is made under, and limited to, the sale-of-business exception in California Business and Professions Code Section 16601. The selling Owner, having sold all of the Owner's ownership interest and the associated goodwill, agrees not to carry on a similar business within [specify counties or geographic area] for so long as the Company or its successor carries on a like business there. The parties acknowledge that, under Business and Professions Code Section 16600, any broader restraint is void.

4. Valuation; Buyout in Lieu of Dissolution. The purchase price is the [fixed price / formula / appraised fair value] stated in the national template, updated at least [annually]. The parties intend this valuation to control any purchase of a moving party's shares, including a buyout to avoid dissolution under California Corporations Code Section 2000, and elect the method above in place of a liquidation-value appraisal to the extent the law and the Company's articles permit.

5. Transfer Restriction Legend. The Company shall note the transfer restrictions in this Agreement conspicuously on each share certificate, and shall notify the registered owner of any uncertificated shares, so the restrictions are effective under California Commercial Code Section 8204.

6. Execution. This Agreement is effective when signed by the Owners and the Company. No notarization or witness is required; a signed writing satisfies California Civil Code Section 1624.

Spousal Consent. The undersigned is the spouse of an Owner. I have read this Agreement, consent to it, and agree that my interest, if any, in the Owner's business interest is subject to its terms.

Owner: ______________________ Date: __________

Spouse: _____________________ Date: __________

This compact California set supplements the national Buy-Sell Agreement template. It is general information, not legal advice; attorney review is available.

California Requirements for Buy-Sell Agreement

California Spousal Consent and Community Property Notice

California is a community property state. A spouse who manages a business that is substantially community personal property may act alone but must give the other spouse prior written notice before disposing of substantially all of its assets (Family Code Section 1100(d)). Include a spousal consent so transfers are not later challenged.

California Non-Compete Requires the Sale-of-Business Exception

A covenant not to compete against a departing owner is enforceable in California only under Business and Professions Code Section 16601 (sale of an ownership interest or goodwill, within a specified geographic area). A general restraint is void under Section 16600, so tie any non-compete to the sale.

California Buyout in Lieu of Dissolution (Section 2000)

California Corporations Code Section 2000 lets a corporation or holders of 50 percent or more of the voting power avoid dissolution by purchasing the moving parties' shares for cash at fair value. Draft the valuation clause to set the method the owners prefer instead of California's liquidation-value default.

California Transfer Restriction Noted on the Certificate

Under California Commercial Code Section 8204, a transfer restriction binds a later buyer only if it is noted conspicuously on the share certificate, or, for uncertificated shares, the registered owner has been notified. Add the legend when your California company issues or endorses certificates.

California Signed Writing; No Notarization Required

A California buy-sell agreement is valid as a signed writing under the statute of frauds (Civil Code Section 1624). No notarization, witnesses, or government filing is required. Keep the signed agreement with the company records and update the valuation periodically.

Frequently Asked Questions

It is a contract among the owners of a California business that sets who may buy an owner's interest, the price or valuation method, and the triggers such as death, disability, divorce, 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 California companies keep both.

Often yes. California is a community property state, and a spouse who manages a community-property business must give prior written notice before disposing of substantially all of it (Family Code Section 1100(d)). A signed spousal consent avoids later claims that a transfer was invalid.

In California, only under the sale-of-business exception. Business and Professions Code Section 16601 lets an owner who sells their interest or goodwill agree not to compete in a set geographic area. A general non-compete is void under Section 16600, so tie the clause to the sale.

California Corporations Code Section 2000 lets a corporation or holders of 50 percent or more of the voting power avoid a dissolution by buying the moving parties' shares for cash at fair value. A clear valuation clause in your buy-sell can set the method used instead of a liquidation appraisal.

No. There is no notarization, witness, or filing requirement. A buy-sell agreement is valid as a signed writing under California's statute of frauds (Civil Code Section 1624). Keep the signed agreement with the company records and update the valuation periodically.

California owners commonly use life or disability insurance on each owner, a sinking fund, or installment payments from the buyer. Pre-funding matters because a California buyout to avoid dissolution can otherwise be priced under Corporations Code Section 2000. Match the funding to your valuation so the agreed price can be paid.