Breaking up or Buying Out Your Business Partner
Even long and profitable business partnerships can dissolve over a personal conflict, a drastic departure of ideas or vision, or perhaps your partner has discovered a more promising opportunity. It’s best to end things on friendly terms when possible. Whatever the reasons, if you want to keep the business going on your own, there are some things to know about negotiating a successful buy out.
Setting detailed terms from the beginning
It would be helpful if you began your business partnership by drawing up documents on how the business will be run, but a well-written agreement should also include provisions for dissolution. The reasoning behind this is simply that if things end on a bad note, neither party is cheated of their just share. Buying out a partner without a written agreement can make things more difficult and the process much longer if it involves haggling over specific items.
Make sure it is the best choice
You may be so anxious to terminate the arrangement that you’re tempted to give in to terms that are less than fair. Before you take definite steps in buying out a partner, look into some other options. If you had a well-structured partnership agreement, you may simply be able to dissolve the partnership without any need for a buyout. Consider having the partner sign a revised agreement allowing you to retain controlling interests in the business while leaving your partner’s equity as it is, eliminating the need for a buyout. If your partner for whatever reason refuses to accept a minority share, and your agreement doesn’t have specific provisions for terminating the partnership, you can always make an offer that allows your partner to buy you out. Another alternative is selling a 3rd party your stake in the company. If none of these options work out, you may have to proceed with a buyout.
Research financing options
Many business partners reaching this point may find that they simply lack the funds. But securing a loan can be a difficult process in the world of small business lending. Before lenders will approve your loan they want to see how the capital will boost profits sufficiently for you to make your payments with interest. Since buying out a partner doesn’t directly improve business prospects, lenders are often reluctant. Equity-based funding isn’t any better since the lender’s investment doesn’t provide a good return.
Call John McDuff
Even if you and your business partner had a formal agreement, it may be advantageous to make your first step a consultation with John McDuff. The cost of attorney fees should be weighed against the fact that a professional can clarify terms, avoid conflicts, and ensure legal compliance. If both parties are in agreement, the buyout can proceed. It’s only necessary to file required paperwork with the authorities to reflect the new arrangement. The name of the former partner is removed from all accounts. We can then draft documents that release the former partner from liability.
In ideal situations, you can negotiate a buyout that’s a win on both sides. If conflict and disputes occur, try to keep things civil and look for a resolution. Contacting a business lawyer like John McDuff is the best, most effective way to ensure you wind up in a favorable position.