Every business with more than one owner will eventually face an owner leaving. It might be a retirement, a falling-out, divorce, or death. A buy-sell agreement (or buy-sell terms in your LLC operating agreement, for example) decides in advance who can buy the departing owner’s interest, at what price, and how it gets paid for. Without one, you may find yourself in business with a former partner’s spouse, heirs or creditor.
Martin drafts buy-sell provisions for LLC agreements, shareholder agreements for corporations, and partner buyout terms for businesses in Shoreline, Seattle and throughout Washington. The work is part legal drafting and part planning: the right terms depend on your ownership, your finances, and what each owner wants to happen when they separate from the business.
How Martin helps
- Buy-sell provisions in a new or existing LLC operating agreement.
- Shareholder agreements for corporations, including share transfer restrictions.
- Partner buyout agreements when an owner is leaving now.
- Valuation clauses that set a clear, workable method for pricing an interest.
- Funding plans coordinated with your insurance advisor and accountant.
- Spousal consents that address Washington community property.
- Rights of first refusal, drag-along and tag-along terms for outside offers.
- Review of an old agreement whose fixed price or formula no longer makes sense.
Washington issues to plan for
Community property and divorce
Washington is a community property state. An ownership interest acquired during marriage may be community property under chapter 26.16 RCW, even if only one spouse is listed as the owner. In a divorce, a spouse may be awarded part of that interest. Buy-sell agreements commonly treat divorce as a triggering event and ask each owner’s spouse to sign a consent acknowledging the transfer restrictions and buyout terms. Without that, the other owners may have little say over who ends up with the interest.
Noncompetes for departing owners
Washington’s noncompete law, chapter 49.62 RCW, sharply limits restrictions on employees and contractors, and a broader ban takes effect June 30, 2027. The statute keeps an exception for noncompetes connected to the purchase or sale of a business interest. When a working owner is bought out, the buyout documents should be drafted so any restriction fits that exception rather than being treated as an employment noncompete.
Death and the estate
When an owner dies, their interest passes to their estate or heirs unless the agreement says otherwise. A well-drafted agreement gives the company or remaining owners the right, and sometimes the obligation, to buy that interest, and gives the family a fair price paid on a predictable schedule.
Choosing a valuation method
| Method | How it works | Watch for |
|---|---|---|
| Fixed price | Owners agree on a value and update it periodically. | Prices go stale when owners forget to update them. |
| Formula | A multiple of revenue, earnings or book value. | Formulas can produce odd numbers in a bad or unusual year. |
| Independent appraisal | A qualified appraiser values the interest when the event occurs. | Takes time and money, and the agreement must say who picks the appraiser. |
| Hybrid | A formula or fixed price with an appraisal option if a party objects. | Needs clear deadlines to avoid stalemates. |
Common triggering events
- Death or long-term disability of an owner
- Divorce or legal separation
- Retirement or voluntary withdrawal
- Termination of an owner’s employment with the company
- Deadlock between equal owners
- Bankruptcy, or a creditor seeking to reach an owner’s interest
- An offer from an outside buyer
How it works
- Consultation. Martin meets with the owners to understand the business, each owner’s role and goals, and any existing agreements.
- Planning. Triggering events, valuation method and funding are chosen, often with input from your CPA and insurance advisor.
- Drafting. Martin prepares the agreement or amendment, plus spousal consents.
- Review. Owners review the draft together, and Martin explains how each scenario would play out.
- Signing and upkeep. Final execution, and a reminder schedule to revisit valuation and insurance.
If an owner is leaving as part of a larger transaction, see buying or selling a business. If you are just forming the company, Martin can build these terms in from the start as part of business formation.
Frequently asked questions
What is a buy-sell agreement?
A buy-sell agreement is a contract among business owners that controls what happens to an owner’s interest after certain events, such as death, disability, divorce or departure. It sets who may or must buy the interest, how the price is set, and how the purchase is paid for.
Is a shareholder agreement the same as a buy-sell agreement?
They overlap. A shareholder agreement for a corporation usually contains buy-sell provisions, along with other terms such as voting arrangements and transfer restrictions. In an LLC, the same provisions often live in the operating agreement. The label matters less than having the terms in writing.
How is a business valued in a buy-sell agreement?
Common methods include a fixed price the owners update regularly, a formula tied to earnings or revenue, or an independent appraisal at the time of the event. Many agreements combine methods. The right fit depends on how predictable the business is and how much the owners want to spend when the time comes.
How are buyouts usually funded?
Common options include life and disability insurance, company cash reserves, and installment payments over several years secured by a promissory note. Insurance can be owned by the company or by the owners on each other, and the choice has tax and practical consequences your CPA should weigh in on.
Why should my spouse sign our buy-sell agreement?
In Washington, an ownership interest acquired during marriage may be community property. A spousal consent confirms that your spouse understands and agrees to the transfer restrictions and buyout terms, which helps prevent a divorce or death from placing the interest outside the owners’ control.
Can a buy-sell agreement stop a departing owner from competing?
It can include a noncompete if it fits the sale-of-business exception in Washington’s noncompete statute, chapter 49.62 RCW. Restrictions that look like employment noncompetes may be void, especially after the broader ban takes effect June 30, 2027. Careful drafting matters here.
We already have an agreement. Should we review it?
Yes, if it has been several years, if ownership has changed, or if it uses a fixed price nobody has updated. Old agreements often have stale valuations, missing triggering events or insurance that no longer matches the business’s value.
Plan the exit while everyone agrees
The time to set buyout terms is when the owners are getting along. Martin can help you put a clear agreement in place.
Direct line: 206-929-0609
Office: 17503 10th Ave NE, Shoreline, WA 98155
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See the full list of services Martin Kreshon provides for Washington businesses.