Buy sell agreement

A buy-sell agreement is a prearranged contract outlining how business partners or shareholders handle a situation where one of them wants or needs to exit the partnership.

Gary Keller, during an episode of the Tim Ferriss Show, explains that a buy-sell agreement details terms for selling shares, such as whether the company must buy them back and at what terms. This agreement can prevent disputes and ensure a smooth transition if a partner leaves. However, Keller's own buy-sell agreement was invalidated because both parties used the same lawyer, highlighting the importance of separate counsel in drafting such agreements 1.

Similarly, Sidney Harman, from the Founders, discussed using a buy-sell agreement as a precaution during a merger. If disagreements arose, each party would bid for the other’s interest, ensuring an orderly exit 2.

Both examples underscore the necessity for clear, fair, and legally sound agreements in business relationships.