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 South Dakota, buy-sell agreements are contracts among co-owners of a business that outline the conditions under which a co-owner's interest can be sold, who is eligible to purchase that interest, and how the sale price is to be determined. These agreements are particularly relevant in situations where one co-owner wishes to exit the business due to retirement, divorce, bankruptcy, disability, or death. The purpose of a buy-sell agreement is to ensure a smooth transition of ownership under these circumstances, often allowing the remaining co-owner(s) to purchase the departing owner's interest at a predetermined price or according to a specified valuation method. While state statutes do not typically govern the specific content of buy-sell agreements, they must comply with general contract law principles and any relevant business entity regulations in South Dakota. It is advisable for the agreement to address potential changes in ownership and to include the consent of spouses when necessary, to prevent future disputes or complications. An attorney can help draft and review these agreements to ensure they meet legal requirements and the specific needs of the business and its owners.