A buy-sell agreement governs what happens to an owner's stake in a business when they die, become disabled, divorce, or want to leave — pre-negotiated terms that prevent a triggering event from becoming a crisis for the remaining owners.
The triggering events need to be specifically defined
A well-drafted agreement lists exactly which events trigger a buyout — death, disability, divorce, bankruptcy, voluntary departure, termination for cause — since each may call for different terms and valuation approaches.
Funding the buyout is where plans often fall apart
Even a well-drafted buy-sell agreement is only as good as the remaining owners' ability to actually fund the buyout — many businesses pair the agreement with life or disability insurance specifically to fund a death or disability trigger without straining company cash flow.
Valuation method has to be agreed upon in advance
Whether the agreement uses a fixed formula, an independent appraisal, or a pre-agreed valuation updated periodically, deciding this before a triggering event happens avoids negotiating a company's value under the worst possible circumstances — a death, a divorce, a falling-out.
Cross-purchase vs. entity redemption structures
A buy-sell agreement can be structured so remaining owners buy the departing owner's shares directly (cross-purchase) or so the business itself redeems them (entity redemption) — the right structure affects tax treatment and should be chosen deliberately, not by default.