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.

0/5000

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 Massachusetts, 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

Customize your Buy-Sell Agreement Template with DocDraft

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.

Massachusetts Requirements for Buy-Sell Agreement

Massachusetts Business Corporation Act Compliance (Massachusetts General Laws Chapter 156D)
The agreement must comply with the Massachusetts Business Corporation Act (Chapter 156D), which governs corporate formation, operation, and dissolution in Massachusetts, including provisions related to stock transfers and shareholder agreements.
Massachusetts Limited Liability Company Act Compliance (Massachusetts General Laws Chapter 156C)
For LLCs, the agreement must comply with the Massachusetts Limited Liability Company Act, which governs the formation, management, and dissolution of LLCs in Massachusetts, including provisions related to membership interest transfers.
Massachusetts Partnership Law Compliance (Massachusetts General Laws Chapter 108A)
For partnerships, the agreement must comply with Massachusetts partnership laws, which govern the formation, operation, and dissolution of partnerships, including provisions related to partnership interest transfers.
Massachusetts Uniform Commercial Code (Massachusetts General Laws Chapter 106)
The agreement must comply with Massachusetts' adoption of the Uniform Commercial Code, particularly Article 8 (Investment Securities) and Article 9 (Secured Transactions) which govern the transfer of business interests and security interests in those transfers.
Massachusetts Contract Law (Massachusetts Common Law of Contracts)
The agreement must comply with Massachusetts contract law principles, including requirements for offer, acceptance, consideration, capacity, and legality to ensure the agreement is enforceable.
Massachusetts Statute of Frauds (Massachusetts General Laws Chapter 259, Section 1)
The agreement must be in writing to comply with Massachusetts' Statute of Frauds, which requires certain contracts, including those that cannot be performed within one year and those involving the sale of interests in land, to be in writing to be enforceable.
Massachusetts Estate Tax Provisions (Massachusetts General Laws Chapter 65C)
The agreement must consider Massachusetts estate tax implications, as Massachusetts has its own estate tax with a threshold lower than the federal exemption, which can affect business succession planning.
Massachusetts Securities Laws (Massachusetts General Laws Chapter 110A (Massachusetts Uniform Securities Act))
The agreement must comply with Massachusetts securities laws if the transfer of business interests could be considered a securities transaction, requiring proper disclosures and potentially registration exemptions.
Massachusetts Fraudulent Transfer Act (Massachusetts General Laws Chapter 109A)
The agreement must comply with Massachusetts' Uniform Fraudulent Transfer Act, which prevents transfers made to hinder, delay, or defraud creditors, particularly relevant for valuation provisions in buy-sell agreements.
Massachusetts Business Valuation Standards (Massachusetts Case Law on Business Valuations)
The agreement should incorporate Massachusetts-recognized business valuation standards and methodologies to ensure fair market value determinations that will be upheld by Massachusetts courts.
Federal Income Tax Compliance (Internal Revenue Code Sections 302, 303, and 1041)
The agreement must comply with federal income tax laws, particularly IRC Section 302 (redemptions), Section 303 (redemptions to pay death taxes), and Section 1041 (transfers between spouses) to ensure favorable tax treatment of business interest transfers.
Federal Estate and Gift Tax Compliance (Internal Revenue Code Sections 2703 and 2704)
The agreement must comply with federal estate and gift tax provisions, including valuation rules under IRC Section 2703, which can disregard certain provisions in buy-sell agreements for estate tax valuation purposes unless specific requirements are met.
Federal Securities Laws (Securities Act of 1933 and Securities Exchange Act of 1934)
The agreement must comply with federal securities laws if the transfer of business interests could be considered a securities transaction under federal law, requiring proper disclosures and potentially registration exemptions.
Americans with Disabilities Act Compliance (42 U.S.C. § 12101 et seq.)
The agreement must comply with the Americans with Disabilities Act when addressing disability triggers for buy-sell provisions, ensuring that disability definitions and provisions do not discriminate unlawfully.
ERISA Compliance (29 U.S.C. § 1001 et seq.)
If the buy-sell agreement involves employee benefit plans or retirement accounts as funding mechanisms, it must comply with the Employee Retirement Income Security Act, which governs employee benefit plans.
Massachusetts Divorce and Family Law (Massachusetts General Laws Chapter 208)
The agreement should address Massachusetts divorce law implications, as Massachusetts is an equitable distribution state where business interests may be considered marital property subject to division in divorce proceedings.
Massachusetts Insurance Laws (Massachusetts General Laws Chapter 175)
If the buy-sell agreement is funded with insurance, it must comply with Massachusetts insurance laws, including insurable interest requirements and potentially the Massachusetts Viatical Settlements Act if life insurance policies are involved.
Massachusetts Probate Code (Massachusetts General Laws Chapter 190B (Massachusetts Uniform Probate Code))
The agreement must consider Massachusetts probate laws, which govern the administration of estates and can affect how business interests are transferred upon an owner's death.
Massachusetts Fiduciary Duties (Massachusetts Case Law on Fiduciary Duties (e.g., Donahue v. Rodd Electrotype Co.))
The agreement must address Massachusetts law on fiduciary duties among business owners, particularly in closely-held businesses where Massachusetts courts have recognized heightened fiduciary duties among shareholders.
Internal Revenue Code Section 409A (Internal Revenue Code Section 409A)
If the buy-sell agreement includes deferred compensation arrangements, it must comply with IRC Section 409A, which governs nonqualified deferred compensation and imposes strict requirements to avoid adverse tax consequences.

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

Massachusetts Requirements for Buy-Sell Agreement

Massachusetts Business Corporation Act Compliance (Massachusetts General Laws Chapter 156D)

Massachusetts Limited Liability Company Act Compliance (Massachusetts General Laws Chapter 156C)

Massachusetts Partnership Law Compliance (Massachusetts General Laws Chapter 108A)

Massachusetts Uniform Commercial Code (Massachusetts General Laws Chapter 106)

Massachusetts Contract Law (Massachusetts Common Law of Contracts)

Massachusetts Statute of Frauds (Massachusetts General Laws Chapter 259, Section 1)

Massachusetts Estate Tax Provisions (Massachusetts General Laws Chapter 65C)

Massachusetts Securities Laws (Massachusetts General Laws Chapter 110A (Massachusetts Uniform Securities Act))

Massachusetts Fraudulent Transfer Act (Massachusetts General Laws Chapter 109A)

Massachusetts Business Valuation Standards (Massachusetts Case Law on Business Valuations)

Federal Income Tax Compliance (Internal Revenue Code Sections 302, 303, and 1041)

Federal Estate and Gift Tax Compliance (Internal Revenue Code Sections 2703 and 2704)

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

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

ERISA Compliance (29 U.S.C. § 1001 et seq.)

Massachusetts Divorce and Family Law (Massachusetts General Laws Chapter 208)

Massachusetts Insurance Laws (Massachusetts General Laws Chapter 175)

Massachusetts Probate Code (Massachusetts General Laws Chapter 190B (Massachusetts Uniform Probate Code))

Massachusetts Fiduciary Duties (Massachusetts Case Law on Fiduciary Duties (e.g., Donahue v. Rodd Electrotype Co.))

Internal Revenue Code Section 409A (Internal Revenue Code Section 409A)

Frequently Asked Questions