Why Your Business Needs a Buy-Sell Agreement, and How to Make One
For privately held businesses, long-term success depends on effective day-to-day operations and the willingness to strategize for the future. One of the most critical tools for protecting ownership interests and business continuity is the buy-sell agreement. This legally binding contract outlines what happens if an owner exits the business due to death, disability, divorce, retirement or other circumstances.
Business owners often overlook the value of drafting a buy-sell agreement. Without a clear plan in writing, the departure of an owner can lead to disputes, financial strain and significant disruption to a thriving company. In this article, we’ll explore what buy-sell agreements are, why they are essential, and the key provisions every owner should understand, including triggering events, valuation methods, structure and funding.
A buy-sell agreement is a contract that governs how an ownership interest will be transferred if a defined event occurs. This means it serves as both a business continuity tool and an exit strategy framework. These agreements are crucial for all businesses, regardless of entity type.
A well-crafted buy-sell agreement aligns the goals of all owners and provides clarity for the future. It provides an orderly exit ramp for owners who wish to leave, discouraging impulsive decisions that could harm the company. It can also prevent ownership from falling into unintended hands – such as an ex-employee who is now working for a competitor, or a third party that opportunistically acquires shares from an owner looking for liquidity.
It’s best to create a buy-sell agreement as early as possible – either at the company’s formation (if there are multiple founders) or when new shareholders are added, as waiting until a triggering event can result in chaos and conflict. Once in place, the agreement should be reviewed regularly – we recommend doing so every two to three years – or after significant business or personal changes, such as substantial growth, restructuring, or changes in tax law.
Source: “Why your business needs a buy-sell agreement, and how to make one,” Zach Hammond, private business advisory, April 9, 2026
Rick Barragan is the Managing Director,
Los Angeles Market Manager, for
J.P. Morgan Private Bank.
[email protected] | (310) 860-3658
privatebank.jpmorgan.com/los-angeles
Source: “The vital role prenups play in protecting family wealth,” Erika Shaw, matrimonial specialist, Jordan Sprechman, vice chairman, practice lead U.S. wealth advisory, March 11, 2026.
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