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 Colorado, 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.

Colorado Requirements for Buy-Sell Agreement

Colorado Business Corporation Act Compliance (Colorado Revised Statutes § 7-101-101 et seq.)
The agreement must comply with the Colorado Business Corporation Act which governs the formation, operation, and dissolution of corporations in Colorado, including provisions related to stock transfers and shareholder agreements.
Colorado Limited Liability Company Act Compliance (Colorado Revised Statutes § 7-80-101 et seq.)
For LLCs, the agreement must comply with the Colorado Limited Liability Company Act which governs membership interests and transfer restrictions.
Colorado Uniform Partnership Act (Colorado Revised Statutes § 7-60-101 et seq.)
For partnerships, the buy-sell agreement must comply with partnership laws governing the transfer of partnership interests and dissolution procedures.
Colorado Securities Act (Colorado Revised Statutes § 11-51-101 et seq.)
The agreement must comply with state securities laws if the transfer of business interests could be considered a securities transaction, including exemption requirements.
Colorado Probate Code (Colorado Revised Statutes § 15-10-101 et seq.)
The agreement should address estate planning considerations and comply with Colorado probate laws, particularly for provisions triggered by death of an owner.
Colorado Uniform Fraudulent Transfer Act (Colorado Revised Statutes § 38-8-101 et seq.)
The valuation and payment terms must not violate fraudulent transfer laws that protect creditors from transactions designed to hide assets.
Colorado Contract Law (Colorado common law and Colorado Revised Statutes § 4-1-101 et seq. (UCC))
The agreement must satisfy basic contract formation requirements including offer, acceptance, consideration, legal purpose, and capacity of parties.
Federal Securities Laws (Securities Act of 1933, Securities Exchange Act of 1934)
The agreement must comply with federal securities laws if the business interests being transferred could be classified as securities under federal law.
Internal Revenue Code Section 409A (26 U.S.C. § 409A)
The agreement must comply with deferred compensation rules if payment for business interests will be made over time, to avoid severe tax penalties.
Internal Revenue Code - Tax Treatment (26 U.S.C. §§ 302, 303)
The agreement should address tax implications of transfers, including potential application of IRC 302 (stock redemptions), IRC 303 (redemptions to pay death taxes), and capital gains treatment.
Colorado Divorce Laws (Colorado Revised Statutes § 14-10-113)
The agreement should address how business interests are treated in the event of an owner's divorce, consistent with Colorado's equitable distribution laws.
Americans with Disabilities Act (42 U.S.C. § 12101 et seq.)
Provisions related to disability triggers must comply with federal disability laws and not discriminate improperly against disabled individuals.
Colorado Restraint of Trade Laws (Colorado Revised Statutes § 8-2-113)
Any non-compete or restrictive covenant provisions must comply with Colorado's specific limitations on restraints of trade.
Federal Estate Tax Laws (26 U.S.C. § 2703)
The agreement should address estate tax considerations, particularly for provisions triggered by death, including potential application of IRC 2703.
Colorado Statute of Frauds (Colorado Revised Statutes § 38-10-112)
The agreement must be in writing to be enforceable as it involves business interests and typically cannot be performed within one year.
Colorado Insurance Laws (Colorado Revised Statutes § 10-1-101 et seq.)
If life insurance or disability insurance is used to fund the buy-sell agreement, relevant Colorado insurance laws must be followed.
Federal Gift Tax Laws (26 U.S.C. § 2501 et seq.)
The agreement must consider gift tax implications if business interests are transferred at less than fair market value during lifetime transfers.
Colorado Uniform Commercial Code (Colorado Revised Statutes § 4-9-101 et seq.)
For agreements involving security interests or payment obligations, Colorado's UCC provisions may apply, particularly Article 9 for secured transactions.
Colorado Electronic Transactions Act (Colorado Revised Statutes § 24-71.3-101 et seq.)
If the agreement will be executed electronically, it must comply with Colorado's laws governing electronic signatures and records.
Federal Retirement Plan Laws (ERISA) (29 U.S.C. § 1001 et seq.)
If retirement plan assets will be used to fund the buy-sell agreement, ERISA and related federal laws must be considered.

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

Colorado Requirements for Buy-Sell Agreement

Colorado Business Corporation Act Compliance (Colorado Revised Statutes § 7-101-101 et seq.)

Colorado Limited Liability Company Act Compliance (Colorado Revised Statutes § 7-80-101 et seq.)

Colorado Uniform Partnership Act (Colorado Revised Statutes § 7-60-101 et seq.)

Colorado Securities Act (Colorado Revised Statutes § 11-51-101 et seq.)

Colorado Probate Code (Colorado Revised Statutes § 15-10-101 et seq.)

Colorado Uniform Fraudulent Transfer Act (Colorado Revised Statutes § 38-8-101 et seq.)

Colorado Contract Law (Colorado common law and Colorado Revised Statutes § 4-1-101 et seq. (UCC))

Federal Securities Laws (Securities Act of 1933, Securities Exchange Act of 1934)

Internal Revenue Code Section 409A (26 U.S.C. § 409A)

Internal Revenue Code - Tax Treatment (26 U.S.C. §§ 302, 303)

Colorado Divorce Laws (Colorado Revised Statutes § 14-10-113)

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

Colorado Restraint of Trade Laws (Colorado Revised Statutes § 8-2-113)

Federal Estate Tax Laws (26 U.S.C. § 2703)

Colorado Statute of Frauds (Colorado Revised Statutes § 38-10-112)

Colorado Insurance Laws (Colorado Revised Statutes § 10-1-101 et seq.)

Federal Gift Tax Laws (26 U.S.C. § 2501 et seq.)

Colorado Uniform Commercial Code (Colorado Revised Statutes § 4-9-101 et seq.)

Colorado Electronic Transactions Act (Colorado Revised Statutes § 24-71.3-101 et seq.)

Federal Retirement Plan Laws (ERISA) (29 U.S.C. § 1001 et seq.)

Frequently Asked Questions