What is the purpose of a buy-sell agreement?

A buy-sell agreement is a legally binding contract that outlines the terms and conditions under which co-owners of a business can purchase each other's ownership interests. This agreement serves several key purposes, primarily ensuring business continuity and stability in the event of certain triggering events, such as death, disability, retirement, or a desire to sell by one of the owners.

By establishing clear obligations and procedures for buying and selling ownership interests, these agreements help prevent disputes among co-owners and provide a clear mechanism for valuing the business, which is crucial for determining fair pricing in these transactions. This clarity not only protects the interests of the remaining owners but also provides security for the departing owner's beneficiaries or estate.

While there may be other actions or agreements related to a business that aim to increase profits, regulate employee benefits, or manage operational procedures, the specific function of a buy-sell agreement is focused on the transfer of ownership interests. Therefore, the correct choice reflects its essential role in business ownership transitions.