A Brief Overview of the 3 Types of Buy-Sell Agreements

Business valuation expert, Chris Mercer, takes a look at Purchase Sale Agreements – the contract between the buyer and seller of a business.

The three main types are 1) the Cross-purchase agreement that occurs among shareholders i.e. when one or more shareholders acquire shares belonging to other shareholders 2) Entity-purchase agreements call for the business to buy on certain contingencies occuring and 3) Hybrid Agreements.

In the last post, we defined buy-sell agreements (at least in terms of a layman), noted key business issues that must be addressed, confirmed that buy-sell agreements are common to all corporate forms and industries, and profiled the types of companies we are addressing.  Now it is time for a quick look at the three main categories of buy-sell agreements….

With cross-purchase agreements, each owner individually agrees to purchase the interest of an owner if one of the conditions that triggers the agreement occurs. Triggering events generally include the death, disability or retirement of a business owner or otherwise sale of a shareholder’s interest. The cross purchase agreement will outline the terms on which purchases/sales are to be made following trigger events.  They will…A Brief Overview of the Three Categories of Buy-Sell Agreements