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Corporate Share Buyout Agreement

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Updated October 09, 2026

A corporate share buyout agreement defines the process by which one or more business owners purchase another owner's shares in the company. The agreement must align with the corporation's bylaws. A management buyout (MBO) agreement is a variation in which employees or managers, rather than owners, purchase shares from an owner.

Business Buyout vs. Buy-Sell

A business buyout occurs in real time, whereas a buy-sell agreement anticipates some future event. The first governs a transaction that’s already been decided on; the latter becomes valid only when something specific happens, such as the death or disability of a business owner.

What to Include

  • Names of signatories
  • Contact information for signatories
  • Precise description of the interest being purchased
  • Any liens or encumbrances
  • Valuation method
  • Valuation date
  • Required approvals and consents
  • Non-compete clause. Some business buyouts contain a non-compete clause that restricts the person who’s selling shares from engaging in similar business activities for a specified period of time (usually 2-5 years) and within a specified geographical area. Enforceability varies by state.

Taxes in a Business Buyout

It depends. Usually, the seller pays capital gains tax on the difference between what they paid for their share(s) and what they get in the buyout. Long-term capital gains rates apply if the seller held onto the interest for longer than a year. Some portions of a buyout, such as payments for inventory, might get taxed as ordinary income.[1][2]

Valuation Methods

In a real estate buyout, valuing an asset is straightforward. Valuing shares in a business is more complicated because you have to account for such intangible variables as customer relationships and future earning potential. Business buyouts often use formulas to determine a valuation, such as a multiple of EBITDA (earnings before interest, taxes, depreciation, and amortization).

Cross-Purchase vs. Redemption

Cross-purchase occurs when an owner or owners of a company purchase a departing owner’s shares directly. Redemption refers to the company itself absorbing the cost of those shares. The Supreme Court ruled in 2024 that redemption increases the value of the company for tax purposes, making cross-purchase a more popular choice.[3]

Buyout vs. Merger

A buyout involves one owner purchasing another owner’s shares in a company, so while ownership changes, the company continues operating largely as it did before the buyout. In a merger, though, two companies become one, changing both the ownership and the structure of the company.

Sample

Download: PDF, MS Word, ODT

Sources

  1. 26 U.S. Code § 1001
  2. IRS Publication 550
  3. Connelly v. United States (2024)