A buy–sell agreement, also known as a buyout agreement, is a legally binding agreement between co-owners of a business that governs the situation if a co-owner dies or is otherwise forced to leave the business, or chooses to leave the business.
An insured buy–sell agreement (triggered buyout is funded with life insurance on the participating owners' lives) is often recommended by business-succession specialists and financial planners to ensure that the buy–sell arrangement is well-funded and to guarantee that there will be money when the buy–sell event is triggered.
A buy–sell agreement consists of several legally binding clauses in a business partnership or operating agreement or a separate, freestanding agreement, and controls the following business decisions: Buy–sell agreement can be in the form of a cross-purchase plan or a repurchase (entity or stock-redemption) plan.
For greater neutrality and effectiveness of the buy–sell arrangement, the service of a corporate trustee is recommended.
Profit or loss from a buy-sell agreement may trigger tax conquencess and taxable income.