**Buy-Sell Agreement** (noun) — A legally binding contract between business co-owners that establishes how a partner's share of the business will be transferred if they die, become disabled, retire, or leave the company.
A buy-sell agreement is a contract between business partners about what happens to their ownership interests when someone can't or doesn't want to be an owner anymore. It prevents business chaos and family conflict when a co-owner dies or leaves.
The agreement typically covers who can buy the departing owner's share (other partners, the company, or approved third parties), how the price is determined, and how the purchase will be funded. This prevents a deceased partner's spouse from suddenly becoming your new business partner or having to sell the company to settle the estate.
Many buy-sell agreements are funded with life insurance. Each partner owns a policy on the others, providing cash to buy out a deceased partner's share. Without this planning, the business might need to be sold or take on debt to pay the estate.
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Buy-sell agreements are essential for any multi-owner business, from small partnerships to family companies with several siblings as owners. They're particularly important when partners have different financial situations, ages, or family circumstances.
The agreement protects everyone. Remaining owners get certainty about who they'll be in business with and how departures are handled. Departing owners (or their estates) get a guaranteed buyer and predetermined price. No one's forced to stay in business with people they didn't choose.
You'll encounter buy-sell agreements when buying into a partnership, setting up a business with others, or settling an estate that includes business ownership. They're complex documents requiring both business and estate planning expertise. Most include valuation formulas, payment terms, and triggering events that activate the buy-sell provisions.
**Related terms:** [Business Succession](/dictionary/business-succession), [Estate Planning](/dictionary/estate-planning), [Life Insurance](/dictionary/life-insurance)
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"My business partner and I have a buy-sell agreement funded by life insurance. If one of us dies, the insurance pays the surviving partner to buy out the deceased partner's share from their estate."