Buy And Sell Agreement


DEFINITION of 'Buy And Sell Agreement'

An approach used by sole proprietorships, partnerships and closed corporations to divide the business share or interest of a proprietor, partner, or shareholder. The owner of the business interest being considered has to be disabled, deceased, retired or expressed interest in selling. The buy and sell agreement requires that the business share is sold according to a predetermined formula to the company or the remaining members of the business. Before the interest of a deceased partner can be sold to the company or remaining partners, the deceased's estate must agree to sell.

BREAKING DOWN 'Buy And Sell Agreement'

In order to ensure the availability of funds in the event of a partner's death, most parties will purchase life insurance policies on the other partners. In the event of a death, the proceeds from the life insurance policy are used to purchase a portion of the deceased's business interest. It is important to note that when a sole proprietor dies, since he/she has no partners, a key employee is the buyer or successor.

  1. Internal Claim

    A claim by a creditor that is restricted to the business's assets ...
  2. Joint Venture - JV

    A business arrangement in which two or more parties agree to ...
  3. Life Insurance

    A protection against the loss of income that would result if ...
  4. Partnership

    A business organization in which two or more individuals manage ...
  5. Sole Proprietorship

    The sole proprietor is an unincorporated business with one owner ...
  6. Passive Income

    Earnings an individual derives from a rental property, limited ...
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