The Shawnees, having lost the brief Dunmore’s War, had been compelled to cede their claim to Kentucky.

Richard Henderson, a judge from North Carolina, had organized a land speculation company with a number of other prominent North Carolinians on August 27, 1774.

Originally called "Richard Henderson and Company", the name had been changed to the "Louisa Company", and then to the "Transylvania Company" on January 6, 1775.

The men hope to purchase Kentucky land from the Cherokees, who still have a claim to the region, and establish a British proprietary colony.

In Henderson meets with more than twelve hundred Cherokees, including Cherokee leaders such as Attacullaculla, Oconostota, and Dragging Canoe, at Sycamore Shoals (present day Elizabethton in northeastern Tennessee).

In the resultant Treaty of Sycamore Shoals, also known as the Treaty of Watauga, dated March 14, 1775, Henderson purchases all the land lying between the Cumberland River, the Cumberland Mountains, and the Kentucky River, and situated south of the Ohio River.

The land thus delineated, twenty million acres (eighty-one thousand square kilometers), encompasses an area half as large as the present state of Kentucky.

Henderson's purchase is in violation of North Carolina and Virginia law, as well as the Royal Proclamation of 1763, which prohibits private purchase of native land.

Henderson may have believed that a recent British legal opinion (the Camden-Yorke opinion) had made such purchases legal.