Business Valuation Issues in Buy-Sell Agreements

A Handbook for Attorneys

In 2007, I published my first book on buy-sell agreements, Buy-Sell Agreements: Ticking Time Bombs or Reasonable Resolutions (now out of print).  The audience was business owners as well as attorneys and other professional advisers.  In my second book on the topic, Buy-Sell Agreements for Closely Held and Family Business Owners, (published in 2010) I honed down the information and wrote directly to business owners.

How This Book is Different

Given the refocusing of this blog to provide “useful business valuation information and insights for attorneys,” my next book on buy-sell agreements will be addressed primarily to attorneys.  This will be a handbook or guide for attorneys about the valuation issues in buy-sell agreements.  I am writing as a business appraiser and not a lawyer. I have no legal opinions. However, I have been involved as a business appraiser in numerous buy-sell disputes – many of which could have been avoided if the attorneys drafting the buy-sell agreement had been aware of certain business valuation-related issues.

This book is also different from my previous books because it will contain drafting materials, or sample language, to assist attorneys with important business and valuation issues when drafting buy-sell agreements.

Preliminary Outline of  the Book

The preliminary outline for the book includes the following chapters (subject to modification, of course):

  • An Introduction to Buy-Sell Agreements
  • An Overview of Categories and Types of Buy-Sell Agreements
    • Categories: Cross purchase agreements, entity agreements and hybrid agreements
    • Types: Fixed prices, Formulas, shotgun agreements, rights of first refusal (not really a buy-sell agreement), and agreements with valuation processes that include the use of one of more appraisers to determine the buy-sell agreement transaction pricing.
  • An Overview of Valuation Process Buy-Sell Agreements
    • The defining elements of valuation processes
    • Multiple appraiser agreements
    • Roles for the third appraiser
    • Single appraiser agreements
    • Hybrid agreement – single appraiser with multiple appraiser options
  • The Defining Elements of Valuation Process Agreements in Detail
  • Multiple Appraiser Valuation Process Agreements
    • Overview
    • Charts and timelines
    • Potential problems and issues
    • Roles the third appraiser can play
  • Single Appraiser Valuation Process Agreements
    • Select appraiser and value at trigger event
    • Select appraiser now and value at trigger event
    • Select appraiser now and value now (and recurring thereafter)
    • Charts and timelines
    • How single appraiser processes eliminate of mitigate issues with multiple appraiser processes
  • Hybrid Valuation Process Agreement
    • Single appraiser selected now
    • Single appraiser values at trigger event
    • Parties have option on objective basis to select additional appraisers
      • Review the single appraiser’s valuation and make recommendations
      • Provide own appraisals
      • Options for finalizing price
  • Trigger Events Checklist
  • Overview of Funding Mechanisms
  • Treatment of Life Insurance Proceeds in Valuation
  • Supplement: Draft language for insertion into buy-sell agreements

Note that I do not plan to spend a lot of time talking about cross-purchase agreements, fixed price agreements or formula agreements.  I will summarize why I don’t think these types work for substantial businesses and reference my earlier books for more detail.

As a valuation guy, I’m most interested in buy-sell agreements that use a valuation process with one or more business appraisers to determine price at trigger events.  The focus is here because most substantial companies use valuation processes to determine price.

The new book will provide a more detailed understanding of how valuation processes should work.  It will also help with modifying existing buy-sell agreements to account for current valuation language in defining the agreed upon valuations called for by the agreements.  I’m excited to be working on this project and look forward to your comments and suggestions as we proceed to develop the book on this blog.

Looking Forward

In the next post, we will cover what I’ll call my layman’s definition of buy-sell agreements.  I’ll point out that buy-sell agreements are important documents because they apply to every corporate form of organization and are needed by companies in every industry.  I’ll point out the key business issues that buy-sell agreements must resolve if they are to be successful when triggered.

Be well,



My two most recent books are available in an Ownership Transition Bundle.  The bundle, priced at $35 plus s/h, has been attractive for many business owners, appraisers and attorneys.


Please note: I reserve the right to delete comments that are offensive or off-topic.

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