Say you own a company with your business partner John. You’ve formed it legally, have bylaws, file taxes regularly, and everything seems fine. Then, suddenly, John goes bankrupt and gets divorced.

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What happens to his half of the business? Does it go to his wife in their settlement? His children? Do you own the whole thing now? Is it worth half as much? Just how do your protect yourself and your business from unforeseen events like these?

The best way is to create a Buy-Sell Agreement

You can think of a Buy-Sell Agreement as a business’s will or prenup. It sets out how the business will deal with a unforeseen circumstances, like the death, retirement, disability, or bankruptcy of an owner. Basically, it governs what happens if an owner is forced to leave the business or chooses to do so of his or her own free will. When you create a Buy-Sell Agreement, you're choosing how the co-owners of your company can sell their share of the business, including to whom and the for what price.

Every business should have one.

You should create a Buy-Sell Agreement tailored to your specific business and to meet your specific needs. You can, for example, make a provisions that govern whether the owner or the business itself purchases the portion given up by the ex-owner. You can choose to include language that allows insurance policies to pay or name a hopeful buyer for your portion of the company if something unfortunate happens.  

Importantly, Buy-Sell Agreements prevent your co-owners from transferring their share of the company to parties you don’t want taking ownership. If your co-owner gets divorced, for example, the owner’s spouse could get control of the that owner’s share unless a Buy-Sell Agreement is in place.

Even outside life’s unfortunate tragedies, a Buy-Sell Agreement is valuable. Say a co-owner is simply burned out on the business. Your agreement can spell out who the share can be sold to, or, as is quite common, include a provision allowing remaining owners to repurchase the ownership share.

Buy-Sell Agreements are incredibly important. They should be created as close to the inception of your business as possible. Moreover, Buy-Sell Agreements are appropriate for every business entity, from corporations to partnerships and even proprietorships.

You can get your own Buy-Sell Agreement through Rocket Lawyer or contact a business attorney for help. But if you own a business and your business is without one, it’s a good idea to rectify that as soon as you can.

Get started Create Your Buy-Sell Agreement Answer a few questions. We'll take care of the rest.

Get started Create Your Buy-Sell Agreement Answer a few questions. We'll take care of the rest.