How Often Should a Buy-Sell Agreement Be Reviewed?

An agreement reflects the business at a single point in time. As value, ownership, and personal circumstances change, the price terms and the funding behind them can drift out of alignment without anyone noticing.

A regular review is far less disruptive — and far less expensive — than discovering a mismatch after an owner has died or become disabled.

An annual check-in does not need to mean rewriting the agreement or commissioning a new appraisal every year. It can be a focused discussion of what changed: ownership, business performance, debt, the owners’ plans, and the insurance already in place. Confirm that the policies are active and that any value-update procedure required by the agreement has been followed. If the agreement calls for an annual price certificate, a casual conversation is not a replacement for that requirement.

A deeper financial review every two to three years can be a useful starting rhythm, but it is not a universal legal requirement or a safe harbor. Some businesses need closer attention because their value changes quickly, their ownership is complex, or a transition is approaching. Others may have relatively stable circumstances. The right schedule should reflect the agreement’s terms and the client’s situation, with the attorney and CPA involved where appropriate.

Think of the annual check-in as a way to catch changes before they become expensive surprises. The deeper review connects those changes to the actual purchase obligation, funding sources, and timing of payment. Neither should assume that another advisor has already handled the financial side.

Do not wait for a calendar date after a major ownership transaction. A new partner, a partial sale, a gift of shares, or the departure of an owner may change both the amount owed and the party responsible for paying it. An acquisition or a new lending arrangement can also affect the company’s ability to fund a redemption. Review the agreement and funding as part of the transaction, rather than treating them as cleanup items afterward.

A material change in health deserves timely attention because new insurance may require underwriting. So does an approaching term-policy expiration. Retirement creates a different kind of deadline: if the owners expect the business to finance a purchase over time, they need a realistic cash-flow plan before the payments begin. Waiting until the departure date can leave both sides with fewer choices.

Legal and tax developments can warrant a review even when the business itself has not changed. The Connelly decision is one example for certain entity-purchase arrangements using company-owned insurance. The client’s attorney and CPA should determine its relevance rather than assuming that every business needs the same response.

Start with the signed agreement and any amendments, not an old draft. Add a current ownership schedule, recent company financials, debt information, and the most recent valuation or agreed-price certificate. For insurance, gather current policy statements showing the insured person, owner, beneficiary, death benefit, premium obligations, and policy term. Include loans or other features that may affect proceeds.

The discussion should compare the estimated obligation for each owner with funding available for each triggering event. A single total can conceal uneven coverage. One owner may be well funded while another is not, and a death buyout may be funded while a disability buyout is not. Identify assumptions separately from facts confirmed by documents.

Missing information does not mean the review must stop. It means someone needs responsibility for obtaining it. A short list of open questions with named owners and follow-up dates is more useful than a broad conclusion that the agreement seems fine. Where value is uncertain, a qualified valuation professional may need to provide a formal analysis.

A review process is only reliable if someone initiates it. Owners can designate a person to coordinate the annual check-in and ask the attorney, CPA, and insurance professional what each needs to verify. That coordinator does not replace those professionals or make legal and tax decisions. The role is to prevent the plan from disappearing between separate files and separate meetings.

After the discussion, distinguish decisions from completed actions. Agreeing to obtain more coverage does not mean a policy has been issued. Deciding to update the purchase price does not mean the required document has been signed. An insurance change should be coordinated with the agreement before older coverage is canceled or ownership is transferred.

Record the next review date, but also record the events that should trigger an earlier conversation. This gives owners a practical maintenance routine rather than a document they only open during a crisis. The objective is a current, coordinated plan whose funding can be explained without relying on memory.