Example Buy-Sell Agreements (Texas)
DISCLAIMER: These documents are for educational purposes only.
Do not attempt to use or modify these forms without the guidance of a licensed Texas attorney. These agreements are not a substitute for legal advice or proper legal drafting.
Example 1: Texas Buy-Sell Redemption Agreement
THIS BUY-SELL AGREEMENT (“Agreement”) is made and entered into as of [Effective Date], by and among [Company Name], a [State of Incorporation] [Entity Type] (the “Company”), and the undersigned owners of the Company (each, a “Shareholder” or “Owner” and collectively, the “Owners”).
ARTICLE I – Purpose and Insurance Ownership
1.1 Purpose.
This Agreement is designed to establish the terms under which the Owners or the Company shall acquire the ownership interest of any Owner who undergoes a triggering event, such as death, disability, retirement, or voluntary/involuntary transfer.
1.2 Insurance Ownership.
The Company shall own life insurance policies on each Owner’s life, with the Company designated as the sole beneficiary. Proceeds from these policies shall be used to purchase the deceased Owner’s interest as provided herein.
ARTICLE II – Mandatory Purchase Events
2.1 Death of an Owner.
Upon the death of an Owner, the Company shall purchase the deceased Owner’s interest using proceeds from the life insurance policy. The purchase price shall be determined under Article IV.
2.2 Permanent Disability.
If an Owner becomes permanently disabled (as defined under Social Security guidelines or a mutually agreed physician’s determination), the Company shall purchase the Owner’s interest using available funds, including any applicable disability insurance proceeds.
2.3 Retirement or Voluntary Withdrawal.
If an Owner chooses to retire or voluntarily withdraw, the Company shall have the first right to purchase the Owner’s interest under the valuation method in Article IV.
2.4 Involuntary Transfer.
Any attempted involuntary transfer (e.g., bankruptcy, divorce decree, or creditor claims) shall trigger an automatic buyout at the valuation method in Article IV, preventing third-party ownership.
ARTICLE III – Transfer Restrictions
3.1 Prohibited Transfers.
No Owner shall sell, assign, transfer, or encumber their interest except as provided in this Agreement.
3.2 Right of First Refusal.
Before selling to a third party, the selling Owner must first offer their interest to the Company and remaining Owners under the valuation terms in Article IV.
ARTICLE IV – Valuation of Ownership Interest
4.1 Agreed Valuation.
The value of each Owner’s interest shall be determined annually by unanimous agreement of the Owners and recorded in a separate valuation certificate.
4.2 Appraisal Method.
If no agreed valuation exists at the time of a triggering event, the fair market value shall be determined by an independent appraiser selected by the Company.
4.3 Payment Terms.
The Company shall pay the purchase price in either:
(a) Lump sum payment; or
(b) Installments over [X] years at an interest rate of [X]%, secured by the purchased interest.
ARTICLE V – Funding and Insurance Provisions
5.1 Insurance Funding.
The Company shall maintain and pay premiums on life and disability insurance policies to fund obligations under this Agreement.
5.2 Insufficient Insurance Proceeds.
If insurance proceeds are insufficient to cover the purchase price, the remaining balance shall be paid per Section 4.3.
ARTICLE VI – Miscellaneous Provisions
6.1 Governing Law.
This Agreement shall be governed by the laws of the State of Texas.
6.2 Binding Effect.
This Agreement shall bind and benefit the parties and their successors, assigns, heirs, and estates.
6.3 Entire Agreement.
This document constitutes the entire agreement regarding the subject matter and supersedes all prior understandings.
Execution
IN WITNESS WHEREOF, the parties execute this Agreement as of the Effective Date.
[Company Name]
By: ___________________________
Title: ___________________________
Date: ___________________________
Owners:
[Owner Name]
Date: ___________________________
[Owner Name]
Date: ___________________________
Cross-Purchase Buy-Sell Agreement
THIS CROSS-PURCHASE BUY-SELL AGREEMENT (“Agreement”) is made and entered into as of [Effective Date], by and among [Company Name], a [State of Incorporation] [Entity Type] (the “Company”), and the undersigned shareholders (each, a “Shareholder” and collectively, the “Shareholders”).
ARTICLE I
Purpose and Insurance Ownership
1.1 Purpose. This Agreement establishes the terms under which the Shareholders shall acquire the ownership interest of any Shareholder who undergoes a triggering event, such as death, disability, retirement, or voluntary/involuntary transfer.
1.2 Insurance Ownership. Each Shareholder shall own and maintain life insurance policies on the lives of every other Shareholder in amounts sufficient to fund the purchase of that Shareholder’s interest in the event of death. The beneficiary of each policy shall be the policy owner, and the proceeds shall be used exclusively to fund the purchase obligations under this Agreement.
ARTICLE II
Mandatory Purchase Events
2.1 Death of a Shareholder. Upon the death of a Shareholder, the surviving Shareholders shall be required to purchase, and the deceased Shareholder’s estate shall be required to sell, all of the deceased Shareholder’s interest in the Company. The purchase shall be funded using proceeds from life insurance policies owned by the surviving Shareholders.
2.2 Permanent Disability. If a Shareholder becomes permanently disabled (as determined by a mutually agreed physician or Social Security guidelines), the remaining Shareholders shall have the option, but not the obligation, to purchase the disabled Shareholder’s interest. If exercised, the purchase shall be funded through available disability insurance proceeds or, if insufficient, per the payment terms in Article IV.
2.3 Retirement or Voluntary Withdrawal. If a Shareholder chooses to retire or voluntarily withdraw, the remaining Shareholders shall have the first right to purchase the departing Shareholder’s interest, using the valuation method in Article IV.
2.4 Involuntary Transfer. Any attempted involuntary transfer (e.g., bankruptcy, divorce decree, or creditor claims) shall trigger an automatic buyout at the valuation method in Article IV, preventing third-party ownership.
ARTICLE III
Transfer Restrictions
3.1 Prohibited Transfers. No Shareholder shall sell, assign, transfer, or encumber their interest except as provided in this Agreement.
3.2 Right of First Refusal. Before selling to a third party, the selling Shareholder must first offer their interest to the remaining Shareholders under the valuation terms in Article IV.
ARTICLE IV
Valuation of Ownership Interest
4.1 Agreed Valuation. The value of each Shareholder’s interest shall be determined annually by unanimous agreement and recorded in a separate valuation certificate.
4.2 Appraisal Method. If no agreed valuation exists at the time of a triggering event, the fair market value shall be determined by an independent appraiser selected by the remaining Shareholders.
4.3 Payment Terms. If insurance proceeds are insufficient to cover the purchase price, the remaining balance shall be paid in either:
(a) Lump sum payment; or
(b) Installments over [X] years at an interest rate of [X]%, secured by the purchased interest.
ARTICLE V
Funding and Insurance Provisions
5.1 Insurance Requirements. Each Shareholder shall purchase and maintain life insurance policies on every other Shareholder, with death benefits proportionate to their ownership interest in the Company.
5.2 Premium Payments. Each Shareholder shall be responsible for paying premiums on the policies they own. If a Shareholder fails to make a premium payment, the other Shareholders may cover the payment and deduct the cost from any future proceeds owed to the defaulting Shareholder.
5.3 Insufficient Insurance Proceeds. If insurance proceeds are insufficient to fund the full purchase price, the remaining Shareholders shall fund the balance under Section 4.3.
ARTICLE VI
Miscellaneous Provisions
6.1 Governing Law. This Agreement shall be governed by the laws of the State of Texas.
6.2 Binding Effect. This Agreement shall bind and benefit the parties and their successors, assigns, heirs, and estates.
6.3 Entire Agreement. This document constitutes the entire agreement regarding the subject matter and supersedes all prior understandings.
Execution
IN WITNESS WHEREOF, the parties execute this Agreement as of the Effective Date.
Shareholders:
[Shareholder Name]
Date: ___________________________
[Shareholder Name]
Date: ___________________________
[Shareholder Name]
Date: ___________________________
