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 Hawaii, buy-sell agreements are contracts among co-owners of a business that outline the conditions under which one owner can sell their interest in the company. These agreements are crucial for establishing a clear process for the transfer of ownership in situations such as retirement, divorce, bankruptcy, disability, or death of a co-owner. They typically specify who is eligible to buy a departing owner's interest, and how the sale price will be determined, either through a pre-agreed price or a valuation method. Buy-sell agreements are not concerned with the sale of the entire business to an external party, but rather with the transition of ownership between existing co-owners. In Hawaii, as in other states, it is advisable for these agreements to be comprehensive and to include provisions for any change in ownership circumstances, potentially including the consent of spouses, to ensure the smooth continuation of the business and protect the interests of all parties involved.