The Role of Buy-Sell Agreements In Family Business SuccessionThe Role of Buy-Sell Agreements In Family Business Succession

A properly drafted buy-sell agreement (buy-sell) is an important component of a successful family business succession plan. Its primary purpose is to provide for the stability and continuity of a family business in a time of transition (such as the death of a controlling shareholder) through the use of ownership transfer restrictions. Typically, such agreements prohibit the transfer of shares in the business to unwanted third parties by setting forth how, and to whom, shares may be transferred. Such agreements also provide a mechanism for determining the sale price for the shares (for example, by appraisal) and how the purchase of shares will be funded (such as with life insurance or an installment sale).

A buy-sell is a contractual arran...