What is the main intent behind buy-sell agreements?

The main intent behind buy-sell agreements is to ensure a market for the shares of a business upon certain events. These agreements are legal contracts that outline what happens to a business owner's share of the company if an owner passes away, decides to leave the business, or faces other triggering events such as disability or bankruptcy. By establishing a predetermined process for the transfer of ownership interests, buy-sell agreements provide clarity and security for both the remaining owners and the departing owner or their beneficiaries.

This security is beneficial because it helps prevent ownership disputes, maintains business continuity, and ensures that the departing owner's shares can be sold or transferred to the remaining partners or approved third parties. The agreement sets the terms, such as valuation methods for the shares and any specific conditions for the buyout, which helps in providing an efficient transition during potentially tumultuous times for the business.

Partnership harmony, while important, is a secondary benefit rather than the main purpose of such agreements. Increasing company valuation is not a direct intention of buy-sell agreements, and the prevention of layoffs during downsizing does not pertain to the ownership transfer scenario addressed by these agreements. Therefore, ensuring a market for shares upon triggering events remains the primary focus of buy-sell agreements.