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 Illinois, 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.

Illinois Requirements for Buy-Sell Agreement

Illinois Business Corporation Act Compliance (805 ILCS 5/)
The agreement must comply with the Illinois Business Corporation Act (805 ILCS 5/), which governs the formation, operation, and dissolution of corporations in Illinois, including provisions related to stock transfers, shareholder rights, and corporate governance.
Illinois Limited Liability Company Act Compliance (805 ILCS 180/)
For LLCs, the agreement must comply with the Illinois Limited Liability Company Act (805 ILCS 180/), which governs membership interests, transfers, and operating procedures for LLCs in Illinois.
Illinois Partnership Act Compliance (805 ILCS 206/)
For partnerships, the agreement must comply with the Illinois Uniform Partnership Act (805 ILCS 206/), which governs partnership interests, transfers, and dissolution procedures.
Illinois Securities Law Compliance (815 ILCS 5/)
The agreement must comply with the Illinois Securities Law of 1953 (815 ILCS 5/), which regulates the offer and sale of securities within Illinois, including potential exemptions for closely-held business interests.
Federal Securities Law Compliance (15 U.S.C. § 77a et seq.; 15 U.S.C. § 78a et seq.)
The agreement must comply with federal securities laws, including the Securities Act of 1933 and Securities Exchange Act of 1934, which may apply to transfers of business interests depending on the transaction structure.
Illinois Contract Law Requirements (Illinois Common Law; 740 ILCS 80/ (Statute of Frauds))
The agreement must satisfy Illinois contract law requirements for valid contracts, including offer, acceptance, consideration, legal purpose, and capacity of the parties.
Illinois Statute of Frauds (740 ILCS 80/)
The agreement must be in writing to comply with the Illinois Statute of Frauds (740 ILCS 80/), which requires certain contracts, including those that cannot be performed within one year, to be in writing to be enforceable.
Illinois Probate Act Considerations (755 ILCS 5/)
The agreement must account for the Illinois Probate Act (755 ILCS 5/) provisions regarding the transfer of business interests upon death, including potential interactions with wills and estate plans.
Illinois Trust and Trustees Act (760 ILCS 5/)
If trusts are used as ownership vehicles, the agreement must comply with the Illinois Trusts and Trustees Act (760 ILCS 5/), which governs the creation and administration of trusts in Illinois.
Federal Estate and Gift Tax Provisions (26 U.S.C. § 2001 et seq. (Estate Tax); 26 U.S.C. § 2501 et seq. (Gift Tax))
The agreement must consider federal estate and gift tax implications for transfers of business interests, including potential valuation discounts and tax planning strategies.
Illinois Estate and Inheritance Tax Provisions (35 ILCS 405/ (Illinois Estate and Generation-Skipping Transfer Tax Law))
The agreement must consider Illinois estate tax implications for transfers of business interests upon death, as Illinois has its own estate tax with different exemption amounts than federal law.
Federal Income Tax Considerations (26 U.S.C. § 1 et seq. (Internal Revenue Code))
The agreement must address federal income tax implications of business interest transfers, including potential capital gains treatment, installment sales provisions, and basis adjustments.
Illinois Income Tax Considerations (35 ILCS 5/ (Illinois Income Tax Act))
The agreement must address Illinois income tax implications of business interest transfers, which may differ from federal treatment in certain respects.
Illinois Fraudulent Transfer Act (740 ILCS 160/)
The agreement must comply with the Illinois Uniform Fraudulent Transfer Act (740 ILCS 160/), which prohibits transfers made to hinder, delay, or defraud creditors.
Americans with Disabilities Act Compliance (42 U.S.C. § 12101 et seq.)
If the agreement includes provisions triggered by disability, it must comply with the Americans with Disabilities Act and ensure that disability definitions and provisions do not violate federal discrimination laws.
Illinois Human Rights Act (775 ILCS 5/)
The agreement must comply with the Illinois Human Rights Act (775 ILCS 5/), which prohibits discrimination based on protected characteristics in business transactions and employment.
Illinois Business Opportunity Sales Law (815 ILCS 602/)
If the buy-sell agreement involves the sale of a business opportunity, it must comply with the Illinois Business Opportunity Sales Law of 1995 (815 ILCS 602/), which regulates disclosures and representations in business opportunity sales.
Federal Retirement Plan Regulations (29 U.S.C. § 1001 et seq. (ERISA))
If the agreement involves transfers of interests held in qualified retirement plans, it must comply with ERISA and related federal regulations governing retirement plan assets.
Illinois Marital Property Considerations (750 ILCS 5/ (Illinois Marriage and Dissolution of Marriage Act))
The agreement must consider Illinois marital property laws, which may affect business interests in the event of divorce or death of an owner, particularly if spousal consents are not obtained.
Illinois Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/)
The agreement must comply with the Illinois Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/), which prohibits unfair and deceptive practices in business transactions.

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

Illinois Requirements for Buy-Sell Agreement

Illinois Business Corporation Act Compliance (805 ILCS 5/)

Illinois Limited Liability Company Act Compliance (805 ILCS 180/)

Illinois Partnership Act Compliance (805 ILCS 206/)

Illinois Securities Law Compliance (815 ILCS 5/)

Federal Securities Law Compliance (15 U.S.C. § 77a et seq.; 15 U.S.C. § 78a et seq.)

Illinois Contract Law Requirements (Illinois Common Law; 740 ILCS 80/ (Statute of Frauds))

Illinois Statute of Frauds (740 ILCS 80/)

Illinois Probate Act Considerations (755 ILCS 5/)

Illinois Trust and Trustees Act (760 ILCS 5/)

Federal Estate and Gift Tax Provisions (26 U.S.C. § 2001 et seq. (Estate Tax); 26 U.S.C. § 2501 et seq. (Gift Tax))

Illinois Estate and Inheritance Tax Provisions (35 ILCS 405/ (Illinois Estate and Generation-Skipping Transfer Tax Law))

Federal Income Tax Considerations (26 U.S.C. § 1 et seq. (Internal Revenue Code))

Illinois Income Tax Considerations (35 ILCS 5/ (Illinois Income Tax Act))

Illinois Fraudulent Transfer Act (740 ILCS 160/)

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

Illinois Human Rights Act (775 ILCS 5/)

Illinois Business Opportunity Sales Law (815 ILCS 602/)

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

Illinois Marital Property Considerations (750 ILCS 5/ (Illinois Marriage and Dissolution of Marriage Act))

Illinois Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/)

Frequently Asked Questions