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

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 Michigan, 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.

Michigan Requirements for Buy-Sell Agreement

Michigan Business Corporation Act Compliance (Michigan Business Corporation Act, MCL 450.1101 et seq.)

The agreement must comply with the Michigan Business Corporation Act (Act 284 of 1972), which governs the formation, operation, and dissolution of corporations in Michigan, including provisions related to stock transfers and shareholder agreements.

Michigan Limited Liability Company Act Compliance (Michigan Limited Liability Company Act, MCL 450.4101 et seq.)

For LLCs, the agreement must comply with the Michigan Limited Liability Company Act, which governs membership interests and transfer restrictions in limited liability companies.

Michigan Uniform Partnership Act (Michigan Uniform Partnership Act, MCL 449.1 et seq.)

For partnerships, the agreement must comply with Michigan's adoption of the Uniform Partnership Act, which governs partnership interests and transfer restrictions.

Michigan Uniform Securities Act (Michigan Uniform Securities Act, MCL 451.2101 et seq.)

The agreement must comply with Michigan securities laws regarding the transfer of business interests, which may be considered securities under certain circumstances.

Michigan Contract Law (Michigan common law of contracts; MCL 566.132 (Statute of Frauds))

The agreement must satisfy Michigan's general contract law requirements, including offer, acceptance, consideration, legal purpose, and capacity of the parties.

Federal Securities Laws Compliance (Securities Act of 1933, 15 U.S.C. § 77a et seq.; Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq.)

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 (Internal Revenue Code § 409A)

The agreement must comply with IRC Section 409A if it involves deferred compensation arrangements, which can affect valuation methods and payment timing.

Internal Revenue Code Section 2703 (Internal Revenue Code § 2703)

The agreement must comply with IRC Section 2703 regarding valuation for estate tax purposes, which requires that buy-sell agreements meet certain requirements to be respected for estate tax valuations.

Michigan Estate and Inheritance Laws (Michigan Estates and Protected Individuals Code, MCL 700.1101 et seq.)

The agreement must account for Michigan's estate laws when addressing transfers upon death, including probate procedures and estate administration requirements.

Michigan Uniform Fraudulent Transfer Act (Michigan Uniform Fraudulent Transfer Act, MCL 566.31 et seq.)

The agreement must comply with Michigan's fraudulent transfer laws to ensure that transfers of business interests are not later deemed fraudulent as to creditors.

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

If the agreement includes provisions related to disability, it must comply with the ADA to avoid discriminatory practices in determining disability status or triggering buy-sell provisions.

Michigan Persons with Disabilities Civil Rights Act (Michigan Persons with Disabilities Civil Rights Act, MCL 37.1101 et seq.)

The agreement must comply with Michigan's disability rights laws when including provisions related to disability triggers for buy-sell events.

Michigan Uniform Commercial Code (Michigan Uniform Commercial Code, MCL 440.1101 et seq.)

The agreement must comply with Michigan's adoption of the UCC, particularly Article 8 regarding investment securities and Article 9 regarding secured transactions if business interests are being pledged as collateral.

Federal Tax Law - Installment Sales (Internal Revenue Code § 453)

The agreement must comply with federal tax laws regarding installment sales if the purchase price will be paid over time, affecting how sellers recognize gain for tax purposes.

Michigan Business Tax Laws (Michigan Corporate Income Tax, MCL 206.601 et seq.)

The agreement must account for Michigan-specific business tax implications of ownership transfers, including Michigan Corporate Income Tax considerations.

Michigan Divorce Laws (Michigan Marriage and Divorce Act, MCL 552.1 et seq.)

The agreement should address Michigan's marital property laws to protect business interests in the event of an owner's divorce, which could otherwise affect ownership structure.

Federal ERISA Compliance (Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq.)

If the buy-sell agreement involves employee benefit plans or retirement accounts for funding, it must comply with ERISA requirements.

Michigan Professional Service Corporation Act (Michigan Professional Service Corporation Act, MCL 450.221 et seq.)

For professional service businesses (doctors, lawyers, etc.), the agreement must comply with Michigan's Professional Service Corporation Act regarding ownership transfer restrictions.

Federal Gift Tax Laws (Internal Revenue Code § 2501 et seq.)

The agreement must account for federal gift tax implications if business interests are transferred at less than fair market value during the owner's lifetime.

Michigan Uniform Arbitration Act (Michigan Uniform Arbitration Act, MCL 691.1681 et seq.)

If the agreement includes arbitration provisions for dispute resolution, it must comply with Michigan's arbitration laws regarding enforceability and procedure.

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.