What Is A Buy-Sell Agreement Definition

Purchase-sale contracts often allow certain transfers of interest by owners that do not trigger a right of first refusal. For example, transfers to revocable trusts are very often permitted, as are transfers to direct family members. Book value is an accounting concept rather than a measure of economic or financial value; it is the carrying amount of an entity`s equity (i.e., its total assets minus its total liabilities). The advantage of using book value is that it is a simple method where value is determined by looking at a company`s balance sheet. Usually, this balance sheet is prepared by an accountant, but many SMEs only have tax returns for their financial statements and do not have a formal audit or even audit. For this reason, purchase and sale agreements using tax returns and tax book value may close a value using accounting information that has not been prepared in accordance with GAAP. In any case, book values are often disproportionate to the economic market value of a company. In order to avoid third-party spouses having a say in management, all purchase-sale agreements should clearly give the outgoing owner the right to buy the interests of his or her former spouse. If the outgoing spouse does not exercise this option, the corporation and other owners should have the right to purchase the interest. In some cases, business owners may choose to combine the two types of agreements by making certain pieces available to partners while offering the rest of the partnership.