When you own a closely held business in Oklahoma—especially one with multiple partners or shareholders—a buy-sell agreement is one of the most important legal documents you can have. Often called a “business will,” this agreement sets out what happens if an owner leaves, retires, dies, or wants to sell their interest. Without it, the company could face disputes, valuation battles, or even dissolution. A well-drafted buy-sell agreement provides clarity, protects all owners, and ensures business continuity.
What Is a Buy-Sell Agreement?
A buy-sell agreement is a binding contract among business owners (or between the company and its owners) that determines how an owner’s interest will be transferred if certain “triggering events” occur. These can include death, disability, bankruptcy, divorce, retirement, or voluntary sale.
In Oklahoma, buy-sell agreements are enforceable under general contract principles and the state’s business entity laws—such as the Oklahoma Limited Liability Company Act and the Oklahoma General Corporation Act.
The key to a strong agreement is anticipating possible changes before they happen. Here are the most important things to include.
1. Identification of the Parties and Ownership Interests
The agreement should clearly list all owners, their ownership percentages, and the form of business (LLC, corporation, or partnership). This ensures no ambiguity about who is bound by the agreement and what share of the business each person holds.
2. Triggering Events
A good buy-sell agreement defines the specific circumstances that will require or allow a buyout. Common examples include:
- Death or disability of an owner
- Retirement or voluntary withdrawal from the business
- Divorce, where a spouse might claim an ownership interest
- Bankruptcy or insolvency of a member
- Termination of employment for owner-employees
- Disagreements or deadlock between owners
Each triggering event should outline exactly what happens and how the transfer process begins.
3. Valuation Method for the Business
One of the most common sources of conflict is determining what the departing owner’s share is worth. The agreement should include a clear valuation method, such as:
- Fixed price agreed upon annually by the owners
- Formula-based valuation, such as a multiple of earnings or book value
- Independent appraisal by a neutral third party
It’s wise to update valuations regularly to reflect market changes and prevent disputes later.
4. Method of Purchase and Payment Terms
The agreement must specify who will buy the departing owner’s interest—the remaining owners, the company itself (a redemption), or a combination of both—and how the purchase will be financed.
Common payment structures include:
- Lump-sum payments
- Installment payments over time
- Use of life insurance policies to fund buyouts after an owner’s death
These terms should be realistic and clearly defined to avoid future cash-flow problems for the business.
5. Restrictions on Transfers and Outside Buyers
To protect the business from unwanted outsiders gaining control, the agreement should prohibit any transfer of ownership without following the buy-sell process. Typically, it gives the remaining owners or the company a right of first refusal before any sale to a third party.
This helps keep ownership within trusted hands and maintains business stability.
6. Funding Mechanisms for the Buyout
Funding is a crucial part of any buy-sell agreement. Oklahoma businesses often use one or more of the following methods:
- Life or disability insurance policies on each owner to fund a buyout upon death or incapacity.
- Sinking funds—business savings accounts set aside for potential buyouts.
- Installment purchase agreements, allowing the company or other owners to pay over time.
By planning funding methods in advance, you can prevent financial strain when a triggering event occurs.
7. Non-Compete and Confidentiality Clauses
After leaving the business, a former owner should not be allowed to immediately compete or use confidential information against the company. A buy-sell agreement should include reasonable non-compete and non-disclosure provisions, compliant with Oklahoma’s restrictions under 15 O.S. §219A, which generally limits non-competes but allows narrow protection of trade secrets and goodwill when tied to the sale of a business interest.
8. Dispute Resolution Procedures
Even well-written agreements can lead to disagreements. Including a dispute resolution clause—such as mediation or arbitration—can save time and legal costs. Setting jurisdiction in the county where the business is located also provides clarity if court action becomes necessary.
9. Signatures and Regular Review
Every owner should sign the buy-sell agreement, and the business should keep both physical and digital copies on file. Because ownership interests and business values change over time, the agreement should be reviewed and updated every few years or whenever new members are added.
Why Every Oklahoma Business Needs a Buy-Sell Agreement
Without a buy-sell agreement, an owner’s unexpected death or departure can throw the business into turmoil. Heirs or former spouses may suddenly own part of the company, disputes can arise over valuation, and the entire enterprise can stall. A well-crafted agreement keeps decision-making predictable and fair, ensuring that your hard work and business relationships remain protected. For a free consultation with an attorney at Kania Law – Claremore attorneys’ law office, call 918-379-4872, or, you can click here to ask a free online legal question.
