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 Washington State, 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 plan for the continuity of the business when one owner retires, divorces, declares bankruptcy, becomes disabled, or passes away. The agreements typically specify who is eligible to buy the departing owner's interest, often giving the remaining co-owner(s) the right of first refusal, and detail how the sale price will be determined, either through a pre-agreed price or a formula for valuation. While these agreements are not used when selling the entire business to an external party, they are essential for internal transitions of ownership. It's important for these agreements to be comprehensive and may include the consent of spouses to prevent future disputes. In Washington, these agreements are governed by general contract law and specific statutes that may apply to different business entities, such as the Revised Code of Washington (RCW) for corporations, partnerships, and limited liability companies. An attorney can help tailor a buy-sell agreement to fit the specific needs of the business and its owners, ensuring legal compliance and addressing any unique circumstances that may affect the business's ownership.