A buy-sell agreement, otherwise known as a buyout agreement, is a legally binding contract between co-owners of a business. The agreement stipulates what will happen if one co-owner dies, chooses or is otherwise forced to leave the business.
Sometimes called a “business will”, a buy-sell agreement can be viewed as a premarital agreement between business partners/shareholders. To ensure the necessary funding is available when the buy-sell agreement is triggered, financial planners typically recommend an insured agreement. In this case the triggered buyout is funded by life insurance on each partner/shareholders lives.