Buy-sell agreements are agreements/contracts between co-owners of a business, and provide the circumstances in which one of the owners can sell their interest; who can buy a co-owner’s interest; and how the sale price will be determined. Despite the somewhat confusing name, these buy-sell agreements are not relevant when both owners wish to sell the business to a third party (person or entity other than the two owners).

Because buy-sell agreements are only relevant when one of the co-owners’ interest is being sold, these agreements generally apply when a co-owner retires, gets divorced, goes bankrupt, becomes disabled, or dies. Buy-sell agreements usually provide for the remaining co-owner to buy the exiting co-owner’s interest in the business at an agreed-upon price, or to calculate the purchase price using an agreed-upon method of valuation (for valuing the company). It may be easier to think of these agreements as buyout agreements, as one owner is typically buying-out the other owner. Buy-sell agreements should carefully address these situations in which an owner is likely to exit the business, or in which the ownership of the business might otherwise change—for example, upon the divorce of an owner—and include the agreement and signature of the co-owners’ spouses if necessary.

In Pennsylvania, buy-sell agreements, also known as buyout agreements, are contracts between co-owners of a business that outline the conditions under which one owner's interest may be sold. These agreements are crucial for establishing a clear plan for the continuity of the business when one owner retires, divorces, declares bankruptcy, becomes disabled, or passes away. The agreement typically specifies who is eligible to buy the departing owner's interest and how the sale price will be determined, either through a pre-agreed price or a formula for valuation. While Pennsylvania law does not have specific statutes governing buy-sell agreements, these contracts are subject to general contract law principles and must be crafted to ensure they are legally binding and enforceable. It is advisable for the agreements to address potential changes in ownership and to include the consent of spouses when necessary, to prevent future disputes or complications. Business owners often work with an attorney to ensure that the buy-sell agreement is comprehensive and tailored to the specific needs of the business and its owners.