Buy-Sell Partnership Agreement Generator – Free Co-Founder & LLC Equity Buyout Contract Maker
What is a Buy-Sell Agreement & Why is It Crucial for Co-Founders?
A Buy-Sell Agreement (often called a business prenuptial agreement) is a legally binding contract among company co-owners that governs what happens to an owner's equity interest if they exit the business. Without a clear buy-sell agreement, a deceased partner's shares might pass to an inexperienced surviving spouse or estranged heirs, paralyzing corporate decision-making.
The 5 Fundamental Trigger Events
- Death: Mandatory buyout to ensure surviving founders retain full ownership while providing the deceased partner's family fair cash compensation.
- Total Disability: If an owner suffers debilitating illness preventing active work for more than 180 consecutive days.
- Voluntary Departure / Retirement: Right of first refusal allowing remaining partners to purchase departing shares before outside buyers.
- Divorce: Prevents an ex-spouse from being awarded corporate stock in domestic property divisions.
- Personal Bankruptcy: Protects the business from having shares seized and liquidated by an owner's personal creditors.
Cross-Purchase vs Entity-Redemption Funding
In a Cross-Purchase agreement, each partner purchases term life insurance on the other partners. When a partner dies, the surviving partners receive tax-free insurance proceeds to buy out the deceased partner's shares directly, receiving a beneficial stepped-up tax basis. In an Entity-Redemption structure, the company itself owns the policies and redeems the stock into treasury shares.
Frequently asked questions
What happens if partners fail to adopt a buy-sell agreement?
Without a buy-sell contract, state partnership statutes govern. Remaining partners have no legal mechanism to force a buyout, meaning a deceased partner's heirs or an estranged ex-spouse becomes your new 50% business partner with voting inspection rights.
How should business valuation be determined?
The most defensible standard is an independent certified appraisal by an accredited business valuation specialist (ASA/CVA/ABV) performed within 60 days of the trigger event, avoiding contentious lawsuits over arbitrary multiples.
Can buyout payments be spread over multiple years?
Yes. Most agreements mandate a 10% to 25% cash down payment at closing, with the remainder structured as a 3- to 7-year senior promissory note amortized at prevailing interest rates to prevent draining company working capital.
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