How Business Owners Can Plan for Succession with a Buy-Sell Agreement
- Consult Team
- Apr 18
- 3 min read
In Singapore, over 99% of businesses are small and medium-sized enterprises (SMEs), collectively employing more than 70% of the workforce and contributing approximately 43% to the GDP (Enterprise Singapore, 2023). Yet despite their economic importance, business succession planning remains one of the most overlooked areas, especially for family-run or closely held businesses.
A key instrument in succession planning is the Buy-Sell Agreement — a legally binding contract that sets the terms for ownership transfer in the event of a triggering event such as death, total and permanent disability, retirement, or voluntary exit of a business owner.
What Is a Buy-Sell Agreement?
A Buy-Sell Agreement (also known as a buyout agreement) is a contractual arrangement between business owners that governs the future sale or transfer of an owner’s share in the business. Its primary objective is to ensure continuity, stability, and valuation certainty within the business by outlining how and when ownership changes hands.
Under Singapore law, such agreements are typically structured in accordance with the Companies Act 1967, Contract Law principles, and relevant clauses in the company’s Shareholders’ Agreement or Partnership Deed.
Why SMEs and Family Businesses Need One
1. Avoid Disruption and Internal Conflict
Without a Buy-Sell Agreement, surviving partners may face disputes with heirs or family members who inherit shares but may lack the skills, interest, or alignment with the business.
2. Ensure Smooth Succession
It ensures that shares are transferred to agreed-upon parties — usually co-owners or the company itself — preserving business direction and operations.
3. Fix a Valuation Method
One of the most contentious succession issues is business valuation. A Buy-Sell Agreement often pre-agrees on a valuation formula or appoints an independent valuer, avoiding delays and litigation.
4. Funding the Buyout
Commonly, the agreement is backed by insurance policies, such as keyman insurance or ownership buyout coverage, to provide liquidity to the purchasing party without straining business cash flow.
Common Triggering Events
Death of a shareholder or partner
Total and permanent disability (TPD)
Critical illness diagnosis
Retirement or voluntary exit
Bankruptcy or legal disqualification
Each event has different implications on timing, valuation, and funding, all of which should be addressed in a properly drafted agreement.
Types of Buy-Sell Agreements
There are three primary structures:
Cross-Purchase Agreement
Co-owners agree to buy each other’s shares.
Best suited for businesses with a small number of shareholders.
Entity Purchase (Redemption) Agreement
The business entity buys back the departing owner’s shares.
More practical for larger firms with multiple shareholders.
Hybrid Agreement
A combination where the business has the first right of refusal, and other shareholders can purchase any remaining interest.
Legal Considerations in Singapore
Ensure the agreement is clearly reflected in the company’s constitution and shareholder records (ACRA filing may be required).
Consider integration with estate planning documents (e.g., wills, trusts, LPAs) to avoid legal contradictions.
Review tax implications, including stamp duty on share transfers and potential income tax issues for beneficiaries.
Real-World Scenario: The Cost of No Planning
In 2022, a Singapore-based SME lost its co-founder unexpectedly without a Buy-Sell Agreement in place. The business faced months of legal wrangling between the deceased’s family and surviving shareholders. Operations stalled, clients left, and the company ultimately downsized — a costly lesson in avoidable chaos.
Start Planning Today
At Stamford Legacy, we work closely with business owners, legal counsel, and financial planners to draft customised Buy-Sell Agreements that are enforceable, tax-aware, and tailored to each business’ structure.
Whether you run a family business or a growing SME, taking proactive steps today ensures your legacy, values, and enterprise are preserved tomorrow.
Looking to protect your business from unexpected disruptions?
Speak to us about implementing a Buy-Sell Agreement today.
