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A Buy-Sell Agreement is a document used when a company wishes to make an agreement with the owners of the company on how their interest in the company, called "Ownership Units," may be sold or transferred. These documents govern what happens in various situations, including if an owner wants to voluntarily sell their ownership in the company during their lifetime. The company can be of various forms - a corporation, LLC, partnership, etc. - the same types of questions will be asked.
This document will likely be filled out towards the beginning of a company's life. In that case, the company would require all of the owners to sign and if they refused, they likely wouldn't be able to become an owner.
The document can be filled out at any time, however, it does not have to be at the beginning of the company's life. If it is signed later, all of the owners must agree to sign. If all of the owners of the company don't agree on the terms, this document would not be executed. It cannot be signed by a few owners and not by others.
Here, the main points are to ensure that each of the owners has been made aware of the restrictions on their sale or transfer of ownership units. This document covers multiple different scenarios which may arise.
This document should be used in conjunction with documents that are filled out at the start of company's life and cover its operations, such as a Shareholder's Agreement for corporations, an LLC Operating Agreement, or a Partnership Agreement.
How to use this document
This document can be used when a company, through its owners, would like to establish a formal written agreement for how and if the owners may sell their ownership units. This document will likely be kept on file with both the company itself and the individual owners, to each have a record of what was agreed to.
Here, questions will be asked about the identity of the company, as well as what type of company it is, and where it is formed. Then each of the owners' names will be entered. Most importantly, this document will ask about various different situations and how ownership units of the company will be handled in those situations, such as the involuntary transfer of ownership units, the termination of an employee-owner, the death of an owner, the retirement of an owner, or if an owner would like to sell or transfer ownership units voluntarily during their lifetime.
Please keep in mind that this form requires not only signatures from all of the owners when it is filled out, but also the spouses of married owners. This is done to ensure the spouses of married owners are aware of the restrictions on their spouse's ownership units (which is a form of property).
Buy-Sell Agreements are subject to the laws of individual states. There is no one federal law covering these documents, because each individual state governs the businesses formed within that state, whether the business is an LLC, corporation, partnership or other.
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