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 Washington DC, 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.

Washington DC Requirements for Buy-Sell Agreement

General Contract Compliance (D.C. Code § 28:1-101 et seq.)
The Buy-Sell Agreement must comply with general contract law principles including offer, acceptance, consideration, legal purpose, and capacity of parties to contract as required under DC common law and the Uniform Commercial Code as adopted in DC.
Business Organization Compliance (D.C. Code § 29-101.01 et seq.)
The agreement must comply with the specific entity laws governing the business structure (corporation, LLC, partnership) under DC law, including any restrictions on transfer of ownership interests.
Securities Law Compliance (Securities Act of 1933; Securities Exchange Act of 1934; D.C. Code § 31-5601.01 et seq.)
If the business interests constitute securities, the agreement must comply with federal securities laws and exemptions, as well as DC securities regulations regarding the offer and sale of securities.
Tax Considerations (Internal Revenue Code; D.C. Code § 47-1801.01 et seq.)
The agreement must address federal and DC tax implications of ownership transfers, including potential capital gains taxes, estate taxes, and business valuation methods acceptable to the IRS and DC Office of Tax and Revenue.
Estate Planning Integration (D.C. Code § 20-101 et seq.; Internal Revenue Code §§ 2001-2210)
The agreement must coordinate with estate planning laws, including provisions for transfer upon death that comply with DC probate code and federal estate tax laws.
Triggering Events Definition (D.C. Code § 28:1-201 et seq.)
The agreement must clearly define triggering events (death, disability, retirement, voluntary withdrawal) in compliance with DC contract interpretation principles and any specific statutory definitions.
Valuation Methodology (Internal Revenue Code § 409A; D.C. Code § 28:2-305)
The agreement must establish legally compliant business valuation methods that satisfy DC contract law requirements for definiteness and federal tax requirements for establishing fair market value.
Life Insurance Provisions (D.C. Code § 31-4701 et seq.; Internal Revenue Code § 101)
If life insurance is used to fund the agreement, provisions must comply with DC insurance laws and federal tax regulations regarding business-owned life insurance.
Disability Provisions (D.C. Code § 2-1401.01 et seq.; 42 U.S.C. § 12101 et seq.)
Disability triggers must comply with DC disability laws and definitions, as well as federal Americans with Disabilities Act considerations for business owners.
Right of First Refusal (D.C. Code § 42-401 et seq.)
Any right of first refusal provisions must comply with DC contract and property law requirements regarding restraints on alienation and reasonable time limitations.
Spousal Consent (D.C. Code § 16-910; ERISA)
The agreement should address spousal rights and may require spousal consent provisions that comply with DC marital property laws and federal retirement account regulations if applicable.
Dispute Resolution (D.C. Code § 16-4401 et seq.)
Dispute resolution provisions must comply with DC laws regarding arbitration, mediation, and judicial enforcement of private agreements.
Non-Compete and Confidentiality (D.C. Code § 32-581.01 et seq.)
Any restrictive covenants must comply with DC's specific laws regarding reasonable non-compete agreements and trade secret protections.
Anti-Assignment Provisions (D.C. Code § 28:9-406; 11 U.S.C. § 365)
Restrictions on assignment of interests must comply with DC contract law regarding reasonable restraints on alienation and federal bankruptcy law considerations.
Deadlock Resolution (D.C. Code § 29-807.01 et seq.)
Provisions addressing business deadlocks must comply with DC business organization laws regarding judicial dissolution and alternative remedies.
Electronic Signatures (15 U.S.C. § 7001 et seq.; D.C. Code § 28-4901 et seq.)
The agreement should address electronic signature compliance under both federal E-SIGN Act and DC's Uniform Electronic Transactions Act.
Payment Terms Compliance (D.C. Code § 28:2-204; Internal Revenue Code § 453)
Payment structures for purchasing business interests must comply with DC contract law requirements for definiteness and federal tax regulations regarding installment sales if applicable.
Minority Shareholder Protections (D.C. Code § 29-804.09)
The agreement must address DC's fiduciary duty requirements and protections for minority business owners against oppression or unfair treatment.
Amendment Procedures (D.C. Code § 29-305.03)
Provisions for amending the agreement must comply with DC contract law regarding modification of existing agreements and any specific requirements in DC business organization statutes.
Choice of Law and Venue (D.C. Code § 28:1-301)
The agreement should include provisions designating governing law and venue that comply with DC's rules regarding choice of law and 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

Washington DC Requirements for Buy-Sell Agreement

General Contract Compliance (D.C. Code § 28:1-101 et seq.)

Business Organization Compliance (D.C. Code § 29-101.01 et seq.)

Securities Law Compliance (Securities Act of 1933; Securities Exchange Act of 1934; D.C. Code § 31-5601.01 et seq.)

Tax Considerations (Internal Revenue Code; D.C. Code § 47-1801.01 et seq.)

Estate Planning Integration (D.C. Code § 20-101 et seq.; Internal Revenue Code §§ 2001-2210)

Triggering Events Definition (D.C. Code § 28:1-201 et seq.)

Valuation Methodology (Internal Revenue Code § 409A; D.C. Code § 28:2-305)

Life Insurance Provisions (D.C. Code § 31-4701 et seq.; Internal Revenue Code § 101)

Disability Provisions (D.C. Code § 2-1401.01 et seq.; 42 U.S.C. § 12101 et seq.)

Right of First Refusal (D.C. Code § 42-401 et seq.)

Spousal Consent (D.C. Code § 16-910; ERISA)

Dispute Resolution (D.C. Code § 16-4401 et seq.)

Non-Compete and Confidentiality (D.C. Code § 32-581.01 et seq.)

Anti-Assignment Provisions (D.C. Code § 28:9-406; 11 U.S.C. § 365)

Deadlock Resolution (D.C. Code § 29-807.01 et seq.)

Electronic Signatures (15 U.S.C. § 7001 et seq.; D.C. Code § 28-4901 et seq.)

Payment Terms Compliance (D.C. Code § 28:2-204; Internal Revenue Code § 453)

Minority Shareholder Protections (D.C. Code § 29-804.09)

Amendment Procedures (D.C. Code § 29-305.03)

Choice of Law and Venue (D.C. Code § 28:1-301)

Frequently Asked Questions