Buy-Sell Agreement
What Does Buy-Sell Agreement Mean?
A buy-sell agreement is an arrangement that facilitates the division of business shares or interests among partners or shareholders in the event that one of the co-owners or shareholders retires, becomes disabled, passes away, or wishes to sell their stake. In the context of insurance, life insurance is often purchased to provide the necessary funds to acquire the shares that become available.
Insuranceopedia Explains Buy-Sell Agreement
Buy-sell agreements are typically structured as either a cross-purchase or stock redemption plan and serve two main functions. First, they ensure business continuity in the event of an unfortunate occurrence, allowing the remaining partners or shareholders to buy the shares of a deceased, retired, or disabled partner. Second, by requiring the involved parties to sell their shares to one another, these agreements prevent an outside party from suddenly acquiring a significant stake in the business, which could potentially alter the company’s management and direction. Essentially, buy-sell agreements act as a hedge against abrupt changes in company leadership and the corporate power structure.
