Buy-sell agreements fix a price mechanism, and the mechanism generates its own litigation when it is drafted loosely.
Agreed value. A stated figure updated annually by the owners. Simple and almost never updated, leaving a stale figure that one side insists on and the other resists. Provide a fallback if the value has not been updated for a stated period.
Formula. A multiple of earnings, book value, or a combination. Define every input — which earnings measure, which period, which adjustments, whether debt and cash are netted — because each is otherwise litigated.
Appraisal. One appraiser jointly appointed, or each side appointing with a third to resolve, or three appraisers with the outlier discarded. Specify the standard of value, the valuation date, the appraiser’s qualifications, whether discounts apply, the materials the appraiser may consider, and the timetable.
Discounts. The single most valuable sentence in the agreement is whether minority and marketability discounts apply. Silence produces a dispute worth half the interest.
Payment. Lump sum or instalments, interest, security, and acceleration on default. Most agreements set a price without providing a way to fund it.
Deadlock in the mechanism. A default rule if a party fails to appoint an appraiser or to cooperate.