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 Kentucky, 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.

Kentucky Requirements for Buy-Sell Agreement

Kentucky Business Entity Compliance (Kentucky Revised Statutes (KRS) Chapters 271B, 275, and 362)
The agreement must comply with Kentucky's business entity laws, specifically KRS Chapter 271B for corporations, KRS Chapter 275 for LLCs, or KRS Chapter 362 for partnerships, depending on the entity type. This includes proper authorization for transfer restrictions according to the entity's governing documents.
Triggering Events (Kentucky common law; KRS 355.8-204 (for restrictions on transfer of securities))
The agreement must clearly define all events that trigger the buy-sell provisions, including death, disability, retirement, termination of employment, bankruptcy, divorce, or voluntary transfer. Kentucky courts require clear and unambiguous triggering events to enforce buy-sell provisions.
Valuation Methodology (Kentucky common law; O'Bryan v. Massey-Ferguson, Inc., 413 S.W.2d 891 (Ky. 1966))
The agreement must establish a clear, fair market valuation method for the business interests being transferred. Kentucky courts generally uphold predetermined valuation methods if they are reasonable and not unconscionable at the time of enforcement.
Life Insurance Funding Provisions (Kentucky Revised Statutes (KRS) Chapter 304, specifically 304.14-040 and 304.14-050)
If life insurance is used to fund the buy-sell agreement, the agreement must comply with Kentucky insurance laws, including insurable interest requirements under KRS Chapter 304, and properly address policy ownership, premium payments, and beneficiary designations.
Spousal Consent (KRS 403.190 (Kentucky's property division statute))
In Kentucky, a spouse may have marital property rights in business interests. The agreement should include spousal consent provisions to ensure enforceability in the event of divorce or death, particularly given Kentucky's status as an equitable distribution state.
Right of First Refusal (Kentucky common law; KRS 355.8-204)
The agreement should include properly structured right of first refusal provisions that comply with Kentucky contract law, including notice requirements, time periods for exercise, and procedures for completing the purchase.
Federal Tax Compliance (Internal Revenue Code Sections 302, 303, 1041, and related Treasury Regulations)
The agreement must address federal tax implications, including potential treatment under IRC Sections 302 (stock redemptions), 303 (redemptions to pay death taxes), and 1041 (transfers incident to divorce), to avoid adverse tax consequences to the parties.
Securities Law Compliance (Securities Act of 1933; Securities Exchange Act of 1934; KRS Chapter 292)
If the business interests constitute securities, the agreement must comply with federal securities laws regarding transfer restrictions and exemptions from registration requirements, as well as Kentucky's Blue Sky Laws.
Disability Provisions (Americans with Disabilities Act; KRS Chapter 344 (Kentucky Civil Rights Act))
The agreement must define disability in compliance with Kentucky law and the Americans with Disabilities Act, and establish clear procedures for determining when a disability triggers buy-sell provisions.
Dispute Resolution (Kentucky Uniform Arbitration Act (KRS Chapter 417); Federal Arbitration Act)
The agreement should include dispute resolution provisions that comply with Kentucky law regarding arbitration, mediation, or litigation, including venue and jurisdiction provisions enforceable under Kentucky law.
Non-Compete and Confidentiality Provisions (Kentucky common law; Hammons v. Big Sandy Claims Service, Inc., 567 S.W.2d 313 (Ky. Ct. App. 1978))
Any non-compete or confidentiality provisions must comply with Kentucky's reasonableness standards for such restrictions, which require limitations in geographic scope, duration, and protected interests to be enforceable.
Estate Planning Integration (KRS Chapter 394 (Wills); KRS Chapter 395 (Estate Administration))
The agreement must address estate planning considerations in compliance with Kentucky probate law, including coordination with wills, trusts, and estate administration procedures to ensure smooth transition upon death.
Contract Formation Requirements (Kentucky common law; KRS 371.010 (Kentucky Statute of Frauds))
The agreement must satisfy Kentucky's requirements for valid contract formation, including offer, acceptance, consideration, legal purpose, and capacity of the parties, as well as any applicable Statute of Frauds requirements for contracts not to be performed within one year.
ERISA Compliance (Employee Retirement Income Security Act of 1974 (ERISA); Internal Revenue Code provisions governing qualified plans)
If the buy-sell agreement interacts with qualified retirement plans or employee benefits, it must comply with ERISA requirements and avoid prohibited transactions or disqualification of retirement plans.
Payment Terms and Financing (KRS Chapter 360 (Interest and Usury); KRS Chapter 355 (Kentucky Uniform Commercial Code))
The agreement must establish legally enforceable payment terms that comply with Kentucky commercial law, including any installment payment provisions, security for deferred payments, and interest rate limitations under Kentucky usury laws.
Operating Agreement/Bylaws Coordination (KRS 275.003 (LLC Operating Agreements); KRS 271B.2-060 (Corporate Bylaws))
The buy-sell agreement must be consistent with and properly reference the company's operating agreement (for LLCs) or bylaws (for corporations) as required by Kentucky business entity laws, avoiding conflicts between governing documents.
Deadlock Resolution (KRS 271B.14-300 (Judicial Dissolution); KRS 275.290 (LLC Judicial Dissolution))
For closely-held businesses, the agreement should include provisions for resolving management deadlocks in compliance with Kentucky business entity laws, which may include buy-sell triggers in deadlock situations.
Transfer Tax Considerations (KRS 142.050 (Deed Transfer Tax))
The agreement must address Kentucky transfer taxes that may apply to the transfer of business interests, including deed transfer taxes if real property is involved, and establish responsibility for payment.
Minority Shareholder Protections (Kentucky common law; Patmon v. Hobbs, 495 S.W.3d 722 (Ky. Ct. App. 2016))
The agreement must comply with Kentucky's protections for minority shareholders or members, including fiduciary duties owed by majority owners and protections against oppression in closely-held businesses.
Amendment Procedures (Kentucky common law on contract modification)
The agreement must establish clear procedures for amendment that comply with Kentucky contract law principles regarding modification of contracts, including requirements for consent of affected parties.

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

Kentucky Requirements for Buy-Sell Agreement

Kentucky Business Entity Compliance (Kentucky Revised Statutes (KRS) Chapters 271B, 275, and 362)

Triggering Events (Kentucky common law; KRS 355.8-204 (for restrictions on transfer of securities))

Valuation Methodology (Kentucky common law; O'Bryan v. Massey-Ferguson, Inc., 413 S.W.2d 891 (Ky. 1966))

Life Insurance Funding Provisions (Kentucky Revised Statutes (KRS) Chapter 304, specifically 304.14-040 and 304.14-050)

Spousal Consent (KRS 403.190 (Kentucky's property division statute))

Right of First Refusal (Kentucky common law; KRS 355.8-204)

Federal Tax Compliance (Internal Revenue Code Sections 302, 303, 1041, and related Treasury Regulations)

Securities Law Compliance (Securities Act of 1933; Securities Exchange Act of 1934; KRS Chapter 292)

Disability Provisions (Americans with Disabilities Act; KRS Chapter 344 (Kentucky Civil Rights Act))

Dispute Resolution (Kentucky Uniform Arbitration Act (KRS Chapter 417); Federal Arbitration Act)

Non-Compete and Confidentiality Provisions (Kentucky common law; Hammons v. Big Sandy Claims Service, Inc., 567 S.W.2d 313 (Ky. Ct. App. 1978))

Estate Planning Integration (KRS Chapter 394 (Wills); KRS Chapter 395 (Estate Administration))

Contract Formation Requirements (Kentucky common law; KRS 371.010 (Kentucky Statute of Frauds))

ERISA Compliance (Employee Retirement Income Security Act of 1974 (ERISA); Internal Revenue Code provisions governing qualified plans)

Payment Terms and Financing (KRS Chapter 360 (Interest and Usury); KRS Chapter 355 (Kentucky Uniform Commercial Code))

Operating Agreement/Bylaws Coordination (KRS 275.003 (LLC Operating Agreements); KRS 271B.2-060 (Corporate Bylaws))

Deadlock Resolution (KRS 271B.14-300 (Judicial Dissolution); KRS 275.290 (LLC Judicial Dissolution))

Transfer Tax Considerations (KRS 142.050 (Deed Transfer Tax))

Minority Shareholder Protections (Kentucky common law; Patmon v. Hobbs, 495 S.W.3d 722 (Ky. Ct. App. 2016))

Amendment Procedures (Kentucky common law on contract modification)

Frequently Asked Questions