A buyout agreement, also called a buy-sell agreement, is a legal document that outlines what steps the co-owners of a business need to take in the event that one or more of them dies, becomes incapacitated or bankrupt or wants to sell their share of the company. According to business expert Susan Ward, a partnership business without a buyout agreement is subject to unfavorable legal rulings or a forced dissolution.
The buyout agreement equates to a pre-nuptial agreement and must be drawn up for all types of business partnerships, even family businesses, according to Daniel Kehrer, the senior content strategist for BizBest Media and author of multiple business books. He also stresses that the terms must be updated periodically throughout the partnership.
Some common key points in buyout agreements include what happens if one business partner divorces a spouse who gets an interest in the business and how to deal with a co-owner who does not accept a reasonable buyout offer. Some additional pertinent points that must be addressed in buyout agreements include partner bankruptcy or substance abuse problems.
Buyout agreements also mention off-topic points such as how to handle an owner who no longer wants to work within the business yet wants to retain his financial interest in the partnership.