When two parties enter into a business partnership, a buy-sell agreement can be a valuable tool to protect each party`s interests. Essentially, a buy-sell agreement outlines what will happen in the event that one of the partners wants to sell their share of the business, or if one of the partners passes away or becomes incapacitated.

Here`s how a typical buy-sell agreement works:

1. Valuation of the business – The first step in setting up a buy-sell agreement is to determine the value of the business. This can be done through a professional valuation or by coming to an agreement between the partners.

2. Triggering event – The buy-sell agreement will outline the triggering event that will put the agreement into effect. This may include the death, disability, retirement, or desire to sell by one of the partners.

3. Purchase price – The agreement will also specify the purchase price for the departing partner`s share of the business. This can be a fixed price, determined through a formula, or based on a new valuation at the time of departure.

4. Funding mechanism – In order to ensure that the remaining partner(s) can buy out the departing partner, the agreement will also specify a funding mechanism. This may include life insurance policies, a sinking fund, or other financial arrangements.

5. Restrictions on transfer – The buy-sell agreement may also include restrictions on the transfer of ownership of the business to outside parties. This can help ensure that the remaining partner(s) have control of the business and can continue to operate it according to their vision and goals.

Overall, a buy-sell agreement can be a valuable tool for protecting a business partnership and ensuring its longevity. By outlining what will happen in the event of a triggering event, both parties can rest assured that their interests are protected and the business can continue to thrive.