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You don’t build a business for decades just to have it fall apart in probate court. And yet, we’ve seen it happen—more than once. A founder passes unexpectedly or retires without a clear plan. Suddenly, the business ends up co-owned by a spouse who doesn’t want it, children who don’t understand it, or a partner who can’t afford to buy out the other side. This is exactly what a buy-sell agreement is designed to prevent.
Note: We had a great discussion on this with Mark Henry, M&A CPA from Citrin Cooperman. You can listen to the interview here.
What Is a Buy-Sell Agreement?
A buy-sell agreement is a legal contract between business partners—or in some cases, family members—that outlines what happens to an owner’s share if they die, become disabled, want to sell, or retire. Think of it as a contingency plan: clear terms, written in advance, that take the emotion and confusion out of future transitions.
It answers questions like:
- Who can buy the shares?
- How will they be valued?
- What happens if the owner is incapacitated or passes away?
- Can shares be transferred to a spouse or child—or is the company required to buy them back?
Why It Matters in a Family Business
Family businesses are uniquely vulnerable here because ownership and emotion are often intertwined. We’ve seen founders assume their kids will just “figure it out” or that things will sort themselves out naturally, but when one sibling wants to stay involved and another wants out, or a spouse inherits half the company but has no desire to run it, the business itself suffers, along with the family relationships.
A buy-sell agreement helps you:
- Protect ownership from falling into unintended hands
- Preserve business continuity in the face of death, divorce, or disagreement
- Establish a valuation method in advance, avoiding fights over worth
- Ensure liquidity exists to fund a buyout without jeopardizing operations
Funding the Plan
Even a great agreement will fail without the money to execute it. That’s why most buy-sell arrangements include some type of funding mechanism—often life insurance or structured reserves—so that the surviving or remaining partners can afford to follow through on the plan.
We’ve worked with founders whose buy-sell agreement was technically sound but functionally useless because no one could afford the buyout. Building it is step one. Funding it is step two.
What to Do Now
If you own a business and don’t have a buy-sell agreement—or you haven’t looked at it in years—now is the time to revisit it. Structures change. Valuations change. So do objectives.
Whether you’re still in growth mode or beginning to think about succession, this is one of the clearest ways to protect the thing you’ve built. At some point, ownership will change hands. The only question is whether it happens by design—or by default.
