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 Rhode Island, 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.

Rhode Island Requirements for Buy-Sell Agreement

General Contract Compliance (Rhode Island General Laws § 9-1-4 (Statute of Frauds))
The Buy-Sell Agreement must comply with Rhode Island's general contract law principles, including offer, acceptance, consideration, and the parties' capacity to contract. The agreement must be in writing and signed by all parties to be enforceable.
Business Entity Compliance (Rhode Island Business Corporation Act (R.I. Gen. Laws § 7-1.2-1 et seq.) or Rhode Island Limited Liability Company Act (R.I. Gen. Laws § 7-16-1 et seq.))
The Buy-Sell Agreement must comply with the specific statutory requirements for the type of business entity involved (corporation, LLC, partnership), including any restrictions on transfer of ownership interests under Rhode Island law.
Right of First Refusal (Rhode Island General Laws § 9-1-4)
Provisions establishing the right of first refusal for existing owners to purchase a departing owner's interest before it can be offered to outside parties, which must be drafted in compliance with Rhode Island contract law.
Valuation Methods (Rhode Island case law on fair market value determinations)
The agreement must specify legally compliant methods for valuing the business or ownership interests upon triggering events, which should be fair, objective, and consistent with Rhode Island case law on business valuations.
Triggering Events (Rhode Island General Laws § 9-1-4)
Clear definition of events that trigger the buy-sell provisions (death, disability, retirement, termination, divorce, bankruptcy), which must be specific enough to be enforceable under Rhode Island contract law.
Estate Tax Compliance (Rhode Island General Laws § 44-22-1 et seq. (Rhode Island Estate Tax) and Internal Revenue Code § 2001 et seq.)
The agreement must address federal estate tax implications for deceased owners' interests and comply with Rhode Island estate tax provisions, including potential tax liability for the estate of a deceased owner.
Life Insurance Provisions (Rhode Island General Laws § 27-4-27 (Insurable Interest))
If life insurance is used to fund the buy-sell agreement, provisions must comply with Rhode Island insurance laws and regulations regarding insurable interest and policy ownership.
Securities Law Compliance (Rhode Island Uniform Securities Act (R.I. Gen. Laws § 7-11-101 et seq.) and Securities Act of 1933)
If the business interests constitute securities under federal or state law, the buy-sell agreement must comply with applicable securities regulations regarding transfer restrictions.
Disability Provisions (Americans with Disabilities Act (42 U.S.C. § 12101 et seq.) and Rhode Island Civil Rights Act (R.I. Gen. Laws § 42-112-1 et seq.))
Provisions addressing an owner's disability must include clear definitions of disability that comply with Rhode Island law and the Americans with Disabilities Act where applicable.
Dispute Resolution (Rhode Island General Laws § 10-3-1 et seq. (Arbitration))
The agreement should include legally enforceable dispute resolution mechanisms (mediation, arbitration) that comply with Rhode Island's Alternative Dispute Resolution Act.
Spousal Consent (Rhode Island General Laws § 15-5-1 et seq. (Divorce and Separation))
In Rhode Island, spousal consent provisions may be necessary to ensure the enforceability of the buy-sell agreement, particularly in community property situations or to prevent future claims against the business.
Non-Competition Provisions (Rhode Island case law on restrictive covenants)
Any non-compete clauses included in the buy-sell agreement must comply with Rhode Island's restrictions on non-competition agreements, which require reasonable limitations in time, geography, and scope.
Tax Compliance (Internal Revenue Code § 1001 et seq. and Rhode Island General Laws § 44-30-1 et seq. (Personal Income Tax))
The agreement must address federal and Rhode Island tax implications of ownership transfers, including potential income tax, capital gains tax, and transfer tax consequences.
Operating Agreement/Bylaws Consistency (Rhode Island General Laws § 7-16-22 (LLC Operating Agreements) or § 7-1.2-203 (Corporate Bylaws))
The buy-sell agreement must be consistent with the company's operating agreement (for LLCs) or bylaws (for corporations) as required by Rhode Island business entity laws.
Bankruptcy Provisions (U.S. Bankruptcy Code (11 U.S.C. § 101 et seq.))
Provisions addressing an owner's bankruptcy must comply with federal bankruptcy law, which may override certain restrictions in the buy-sell agreement.
Deadlock Resolution (Rhode Island General Laws § 7-1.2-1314 (Judicial Dissolution of Corporations) or § 7-16-40 (Judicial Dissolution of LLCs))
For closely-held businesses, provisions addressing potential deadlock situations must comply with Rhode Island business entity laws regarding judicial dissolution and other remedies.
Fiduciary Duties (Rhode Island case law on fiduciary duties and Rhode Island General Laws § 7-16-17 (LLC Member Duties))
The agreement must address the fiduciary duties of business owners under Rhode Island law, particularly in how these duties may be affected during buy-sell transactions.
Electronic Signatures (Rhode Island General Laws § 42-127.1-1 et seq. (Uniform Electronic Transactions Act) and Electronic Signatures in Global and National Commerce Act (15 U.S.C. § 7001 et seq.))
If the agreement will be executed electronically, it must comply with Rhode Island's Uniform Electronic Transactions Act and federal E-SIGN Act requirements.
Disclosure Requirements (Rhode Island case law on contract disclosures and good faith requirements)
The agreement must include adequate disclosures to all parties regarding the legal and financial implications of the buy-sell provisions to ensure enforceability under Rhode Island contract law.
Choice of Law and Venue (Rhode Island General Laws § 9-18-1 et seq. (Venue) and Rhode Island case law on choice of law provisions)
The agreement should specify Rhode Island law as governing and designate appropriate Rhode Island courts as the venue for any litigation, in compliance with Rhode Island's rules on forum selection clauses.

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

Rhode Island Requirements for Buy-Sell Agreement

General Contract Compliance (Rhode Island General Laws § 9-1-4 (Statute of Frauds))

Business Entity Compliance (Rhode Island Business Corporation Act (R.I. Gen. Laws § 7-1.2-1 et seq.) or Rhode Island Limited Liability Company Act (R.I. Gen. Laws § 7-16-1 et seq.))

Right of First Refusal (Rhode Island General Laws § 9-1-4)

Valuation Methods (Rhode Island case law on fair market value determinations)

Triggering Events (Rhode Island General Laws § 9-1-4)

Estate Tax Compliance (Rhode Island General Laws § 44-22-1 et seq. (Rhode Island Estate Tax) and Internal Revenue Code § 2001 et seq.)

Life Insurance Provisions (Rhode Island General Laws § 27-4-27 (Insurable Interest))

Securities Law Compliance (Rhode Island Uniform Securities Act (R.I. Gen. Laws § 7-11-101 et seq.) and Securities Act of 1933)

Disability Provisions (Americans with Disabilities Act (42 U.S.C. § 12101 et seq.) and Rhode Island Civil Rights Act (R.I. Gen. Laws § 42-112-1 et seq.))

Dispute Resolution (Rhode Island General Laws § 10-3-1 et seq. (Arbitration))

Spousal Consent (Rhode Island General Laws § 15-5-1 et seq. (Divorce and Separation))

Non-Competition Provisions (Rhode Island case law on restrictive covenants)

Tax Compliance (Internal Revenue Code § 1001 et seq. and Rhode Island General Laws § 44-30-1 et seq. (Personal Income Tax))

Operating Agreement/Bylaws Consistency (Rhode Island General Laws § 7-16-22 (LLC Operating Agreements) or § 7-1.2-203 (Corporate Bylaws))

Bankruptcy Provisions (U.S. Bankruptcy Code (11 U.S.C. § 101 et seq.))

Deadlock Resolution (Rhode Island General Laws § 7-1.2-1314 (Judicial Dissolution of Corporations) or § 7-16-40 (Judicial Dissolution of LLCs))

Fiduciary Duties (Rhode Island case law on fiduciary duties and Rhode Island General Laws § 7-16-17 (LLC Member Duties))

Electronic Signatures (Rhode Island General Laws § 42-127.1-1 et seq. (Uniform Electronic Transactions Act) and Electronic Signatures in Global and National Commerce Act (15 U.S.C. § 7001 et seq.))

Disclosure Requirements (Rhode Island case law on contract disclosures and good faith requirements)

Choice of Law and Venue (Rhode Island General Laws § 9-18-1 et seq. (Venue) and Rhode Island case law on choice of law provisions)

Frequently Asked Questions