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A “Buy-Sell Agreement”, usually incorporated as a subsection in a more comprehensive Stockholder Agreement, restricts the transferability of shares in a closely-held corporation and defines the conditions upon which liquidity may be achieved.

The restrictions may provide that the stock or units first be offered to the other shareholders or members and, next, to the corporation prior to transfer to any outside party and that any transfer to such outside party be consented to and meet certain conditions. The Buy-Sell Agreement, also, defines the events that mandate the redemption and purchase of the shares or units by the corporation.

One purpose of the Buy-Sell Agreement is to provide some degree of certainty as to the price and terms a selling shareholder/unitholder will receive upon separation, retirement, disability or death. Some agreements set forth a price or a formula; others state that value will be determined as of the date of the event. The word “value”, however, is not sufficiently descriptive. Value is the present worth of expected future benefits. Value, therefore, is subjective — it may be different for different people under different circumstances. As a consequence, over many years, practitioners, legislators and the judiciary have coined and defined numerous terms relating to value including fair market value, fair value, present fair salable value, investment value, enterprise value, book value, and liquidation value. Each has a distinct context and interpretation to a professional business valuator and may yield significantly different opinions of value, often to the distress of one party to the transaction.