What is the purpose of a buy-sell agreement?

A buy-sell agreement serves a critical purpose in the context of partnerships and corporations as it specifically outlines what happens to an owner's interest in a business in the event of certain triggering events, such as retirement, death, or voluntary exit from the business. This legally binding document ensures that ownership transfers occur smoothly and according to predetermined terms, thus minimizing disruptions to the business and providing clarity and security to all parties involved. By having a well-defined process for ownership transfer, it helps protect the interests of remaining owners and prevents potential conflicts or disputes over ownership stakes.

This agreement does not create a new partnership, dissolve the business, or primarily aim to increase capital investment. Instead, its primary focus is on managing the continuity of the business by preparing for changes in ownership.