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 Alabama, buy-sell agreements are contracts among co-owners of a business that outline the terms and conditions under which an owner's interest in the company may be sold in specific situations such as retirement, divorce, bankruptcy, disability, or death. These agreements are crucial for ensuring the smooth continuation of the business by detailing who can purchase a departing owner's interest, and how the sale price will be determined, either through a pre-agreed price or a valuation method. While state statutes do not specifically govern the content of buy-sell agreements, they must comply with Alabama's general contract laws and business entity regulations. Additionally, it is advisable for these agreements to address potential changes in ownership due to personal circumstances, such as divorce, and may require the consent and signature of the co-owners' spouses to prevent future disputes. Attorneys often assist in drafting these agreements to ensure they are legally sound and reflect the intentions of the business owners.