Fundraising & Equity
Buy-Sell Agreements: Protecting the Equity Structure
Collated by Harry Prabandham
Curated by Rubric Financial
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What a Buy-Sell Agreement Does
- A buy-sell agreement is a binding contract between shareholders that establishes the terms under which ownership interests can or must be transferred
- It prevents unwanted third parties from acquiring shares — if a co-founder wants to leave, the company or remaining shareholders have the right (or obligation) to purchase their shares
- Covers triggering events: voluntary departure, termination for cause, death, disability, divorce, bankruptcy, or breach of non-compete
- Without a buy-sell agreement, a departing co-founder could sell shares to anyone, a deceased founder's shares could go to uninvolved heirs, or a divorce could put shares in a spouse's hands
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