Free Buy-Sell Agreement Template – Business Buyout Guide

What a Buy-Sell Agreement Actually Does

Every multi-owner business ends someday, by death, disability, divorce, retirement, or a partner who wants out, and the only question is whether the exit terms get written while everyone is friendly or negotiated in the worst week of somebody’s life. A buy-sell agreement answers the three exit questions in advance: who may (or must) buy a departing owner’s interest, at what price or pricing method, and on what terms the money actually moves. Without one, a co-owner’s death can hand you their spouse as your new partner, and their estate an illiquid stake nobody is obligated to buy, the exact double-sided problem this document exists to prevent.

This guide covers the triggering events, the cross-purchase-versus-redemption choice (rewritten by the Supreme Court’s 2024 Connelly decision), the valuation menu, the copy-and-paste agreement, and the funding that turns promises into money. It works for corporations and LLCs alike; it rides alongside your operating agreement or bylaws rather than replacing them.

The Triggering Events (The Five D’s and an Exit)

A buy-sell fires on defined triggers, and the standard list is memorably grim: death (the estate must sell, the survivors or company must buy, insurance pays); disability (define it concretely, e.g., inability to perform duties for a set number of months, certified medically); divorce (the agreement’s option to buy back any interest awarded to an ex-spouse is what keeps property settlements out of your cap table); bankruptcy or creditor claims against an owner (buy the interest before a trustee owns it); voluntary departure (the right of first refusal that stops a partner from selling to a stranger); and, in many agreements, termination for cause with a discounted price. The craft is in the mandatory-versus-optional wiring: death is usually a mandatory buyout on both sides, while voluntary exits usually run through a right of first refusal, the company and remaining owners may buy, and only if they pass can the outsider deal proceed.

Cross-Purchase vs. Redemption, After Connelly

Two classic structures do the buying. In a cross-purchase, the other owners personally buy the departing owner’s interest (and personally own the insurance policies that fund it). In an entity redemption, the company buys back the interest (and owns the policies). Redemptions used to win on simplicity, one policy per owner instead of everyone insuring everyone, but the Supreme Court changed the math in Connelly v. United States (2024): a unanimous Court held that life-insurance proceeds a corporation receives to fund a redemption count as a corporate asset that increases the company’s value for estate-tax purposes, and the company’s obligation to redeem the shares does not offset that increase. Translation: in a redemption structure, the insurance meant to buy out a deceased owner can simultaneously inflate the taxable value of the very shares being bought. Honest scale note: this bites estates near the federal exemption ($15 million per person for 2026 deaths) or in the dozen-plus states that tax estates at far lower thresholds, and for owners in that zone, Connelly is the reason 2024-era redemption agreements are being restructured toward cross-purchase (or special-purpose insurance arrangements that are squarely attorney territory). For everyone else, it is the reason your structure choice now belongs in the same conversation as your estate plan.

Pricing the Buyout: The Valuation Menu

More buy-sell fights are about price than anything else, so the agreement should fix the method, not a stale number. The menu: agreed value, the owners certify a price annually (simple and fair, but the classic failure is nobody updating it, so the template pairs it with a staleness rule); formula value, a multiple of revenue, earnings, or book value that computes automatically (predictable, but multiples drift from reality as businesses change); and appraisal, a qualified business appraiser at trigger time (most accurate, most expensive, and the right tiebreaker rather than the everyday method). The professional combination, and the template’s default, is layered: agreed value if certified within the last [18] months, otherwise formula, with either side able to demand appraisal, splitting the cost. One more Connelly echo worth writing down: the IRS is not bound by a bargain price your agreement names, so a deliberately lowball valuation doesn’t shrink estate taxes, it only shortchanges the family selling.

Free Buy-Sell Agreement Template (Copy and Paste)

Replace the bracketed items and have every owner (and the company) sign. The downloads above match this text. Drafted as a cross-purchase with a company backstop, the structure Connelly favors, and works for LLCs by reading “shares” as “membership interests.”

The Clauses Doing the Heavy Lifting

The transfer legend (Section 1) puts the world on notice that these interests come with strings, which is what defeats the “innocent buyer” argument later. The ROFR clock (Section 2) is deliberately tight: open-ended response windows kill real sales and invite gamesmanship. Mandatory-on-death (Section 3) protects both directions, the family gets liquidity, the survivors get control, and pairing it with insurance is what makes both promises payable. The divorce option (Section 4b) is the clause owners thank you for a decade later. The staleness rule (Section 5) solves the agreed-value trap: a price nobody updated since 2019 binds nobody fairly, so the formula takes over automatically. Note-based payment terms (Section 6) keep living buyouts from bankrupting the company, and the note itself should be papered properly, our promissory note guide covers the mechanics, including why the interest rate should reference the applicable federal rate.

Funding: Where Buy-Sells Become Real (or Don’t)

An unfunded buy-sell is a promise to find money during a funeral. Life insurance is the standard fix for the death trigger: in the cross-purchase form, each owner owns a policy on each other owner, collects tax-free proceeds at death, and, a quietly valuable bonus, the buyers get a stepped-up basis in the interest they purchase. The known friction is policy count (three owners means six policies) and premium disparities when one owner is older or less insurable; owners solve that with premium-equalization side terms, and larger groups sometimes use special-purpose arrangements that keep policies out of the company, precisely to avoid the Connelly problem, a design conversation for counsel once real estate-tax exposure exists. For living buyouts (retirement, disability years later, voluntary exits), insurance rarely pays, which is why Section 6’s installment-note structure exists: a multi-year note at a defensible rate lets the company or buyers pay from cash flow without a crisis. Whatever the funding, revisit Schedule A and Schedule B on the same annual calendar entry, insurance that no longer approximates the value defeats the design.

Common Buy-Sell Mistakes

Not having one, the default plan being “litigate with the estate.” The stale agreed value: certified once at signing, never again; the staleness-fallback clause exists because this failure is nearly universal. Redemption structures with company-owned insurance and real estate-tax exposure, the exact Connelly fact pattern; owners near the thresholds should have the structure reviewed now, not at the first funeral. No divorce trigger, discovered when a property settlement makes an ex-spouse a co-owner. Unfunded death buyouts or lapsed policies nobody monitored. Terms that contradict the operating agreement or bylaws, two documents claiming to control the same transfer; align them the day you sign. S-corp elections left unguarded (Section 8 is one sentence of cheap insurance). Lowballing the price to “save taxes,” which the IRS can disregard while the selling family cannot.

Frequently Asked Questions

Do we need a buy-sell if we already have an operating agreement?

Check what your operating agreement actually says: some include real buyout machinery, most closely held ones don’t. The buy-sell adds the triggers, pricing method, and funding mechanics, and the two documents must point the same direction on transfers.

What did Connelly v. United States change?

In 2024 the Supreme Court unanimously held that life-insurance proceeds a company receives to redeem a deceased owner’s shares increase the company’s estate-tax value, without an offset for the redemption obligation. It made cross-purchase structures relatively more attractive for owners with estate-tax exposure and put existing redemption agreements on review lists.

Cross-purchase or redemption: which should we pick?

Small owner groups with any estate-tax exposure now generally favor cross-purchase (personal policies, stepped-up basis, no Connelly inflation). Redemption still appeals for simplicity with many owners, which is exactly when specialized structures and an attorney earn their fees.

How should we value the business?

Fix the method, not a number: agreed value re-certified annually, a formula fallback when the certification goes stale, and appraisal on demand as the tiebreaker. The discipline of the annual re-certification matters more than which formula you pick.

What happens if an owner divorces?

With the divorce trigger, any interest awarded to the former spouse is subject to a buyback option at the agreement price, keeping ownership inside the group. Without it, the property settlement decides who your next co-owner is.

Is life insurance required for a buy-sell?

Not legally, but the death trigger is only as good as its funding, and insurance is the only funding that arrives exactly when needed. Living exits are funded with installment notes instead; unfunded promises are the ones that end in fire sales.

Write the Ending While It’s Still Hypothetical

Every co-owned business already has a buy-sell agreement; the only question is whether its terms were chosen by the owners or will be improvised by heirs, ex-spouses, and lawyers. Set the triggers, layer the valuation, fund the death case, calendar the annual re-certification, and have the structure sanity-checked against your estate picture, then go back to running the company, with its ending safely in writing.

David Miller

David Miller writes about small business and LLC formation for ClearLegalTips. He focuses on making business registration, S-corp elections, and seller’s permits understandable for new founders handling them without a lawyer.