What You Need to Know When Buying Out a Business Partner

What You Need to Know When Buying Out a Business PartnerPartnerships come to an end for a variety of reasons, and even in the best of circumstances, the process can be complex. A business succession planning attorney can help you make sense of it all and facilitate a smooth transition while ensuring your rights are protected. Understanding what may be involved when buying out a partner can also help you make informed decisions and safeguard your financial interests.

Talk to an Attorney

Before you speak to your partner about buying out their portion of the business, it is critical to speak to a business lawyer who has experience handling acquisitions. Factors such as valuation, financing, the terms of your initial partnership agreement, and business succession planning can all play a role in determining what your options may be. An attorney can take a comprehensive look at your circumstances, address potential challenges, advise you of your options and help you make a plan. Even if you do not believe you need a lawyer because you and your partner are on great terms, conflict can arise. A business attorney can help your relationship stay positive.

Get an Independent Business Valuation

Hiring a professional to do a formal business valuation is a must to determine whether buying out your partner is a sound decision in the long term. Getting an accurate valuation from an outside party can provide a starting point for negotiations with your partner. However, it is important to keep in mind that business valuation is not an exact science. Each situation is unique. If you find yourself in a serious disagreement about what the business is worth, having an attorney help you negotiate can diffuse the situation and help you come to a fair agreement.

Look at Financing Options

Buying out a partner can come with substantial up-front costs that you may not be able to pay out in one lump sum. Although you can apply for a loan or look for funding elsewhere, self-financing is often the most viable option. This means that you will pay your partner over time as if they were the lender.

Of course, whether this is an option for you depends on your relationship with your current partner. If you are not on the best of terms it may not be a practical solution for financing. However, if it is something your partner will consider, it is critical to have a business contract attorney create a solid buyout agreement.

Consider Buyout Alternatives

If your business valuation turns out to be lower than you anticipated, you may want to consider dissolving the partnership and starting fresh. If your partner is open to it, you could change your partnership agreement so you own a larger share of the company. This way, you can have primary control over the company but will not incur the up-front costs of buying out your partner completely. Your attorney can help you determine which course of action will benefit you.

Make it Official

It would be nice if a deal could be completely sealed with a handshake, but to avoid problems it is best to do things by the book. Once you have both agreed to the terms of the sale, your attorney can draft an agreement and create documents that release your partner from liability. It is also important to talk to your lawyer and accountant about the tax implications of a buyout and what type of business entity you should have moving forward.  Your attorney can ensure that all appropriate documents are filed with local, state, and federal authorities.

Our team of business lawyers, estate planning attorneys and contracts lawyers can help to ensure all your legal bases are covered and your interests are protected.