Buy-sell agreement is a legally binding contract among business owners that governs what happens to an ownerTMs interest upon death, disability, retirement, or other triggering events. It specifies who can buy the departing ownerTMs share, how the price will be determined, and how the transaction will be funded. Common structures include cross-purchase agreements, entity-purchase (stock-redemption) agreements, and hybrid combinations. Properly drafted, a buy-sell agreement prevents unwanted owners from entering the business, provides liquidity to departing owners or their estates, and contributes to business stability by clarifying expectations in advance.

Advisors collaborate with attorneys and valuation experts to design buy-sell agreements and select appropriate funding mechanisms, often using life and disability insurance. They explain the practical implications of cross-purchase versus entity-purchase structures, tax consequences of each, and how premium and policy ownership should be arranged. Once in force, advisors review agreements periodically to ensure coverage amounts and terms keep pace with changing business values and ownership structures. Underwriters may request a copy of the buy-sell agreement when assessing financial justification for large policies. Understanding buy-sell agreements enables advisors to tie insurance recommendations directly to governance frameworks that protect owners and their families.