Buy-Sell Agreement Template
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.
Key Things to Know
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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Massachusetts Requirements for Buy-Sell Agreement
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.
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.
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.
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.
The agreement must comply with Massachusetts contract law principles, including requirements for offer, acceptance, consideration, capacity, and legality to ensure the agreement is enforceable.
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.
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.
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.
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.
The agreement should incorporate Massachusetts-recognized business valuation standards and methodologies to ensure fair market value determinations that will be upheld by Massachusetts courts.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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
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.
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.
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.
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.
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.
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.
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.