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What to remember when asking to buy out a business partner

On Behalf of | Jun 1, 2023 | Business Law |

A business partnership could potentially last until both parties retire or their company eventually fails. Other times, the partnership ends when everybody who invested in the company initially agrees to sell it to an outside party. The ends of business partnerships are often amicable, but this is not always the case.

Sometimes, one partner has bigger plans for the company than the other or becomes frustrated with the uneven contributions that they and their partner make to the business. A buyout is a way for someone to keep running a company and maintain their interest in it while eliminating their partner’s interest after providing reasonable financial compensation.

People propose buyouts for many reasons, but they generally need to prepare before discussing such a major transition with their partner. What should someone keep in mind while preparing to pitch a buyout?

The original partnership agreement is influential

Most partnerships begin with a written contract between the individuals starting or taking over a business. That written agreement often includes detailed instructions for what should happen if one partner eventually wants to buy out the other. There may be specific rules for how to value the company or a certain amount of equity that has to be refunded to the partner. Ensuring that one’s offer adheres to those rules established in the partnership agreement will be of the utmost importance for someone hoping to successfully buy out their partner with minimal conflict.

A reasonable offer should have room to negotiate

Having a sit-down conversation about a buyout with a partner can easily become awkward, and such discussions frequently turn into negotiations. Therefore, the person proposing the buyout needs to have a starting point for their offer that is reasonable while still giving them the ability to negotiate by offering more if their partner resists. Starting with a lowball offer could seem insulting and might derail the negotiations before they even begin, but offering too much too soon can lead to an inability to further compromise.

Some buyouts end up in civil court

Having the patience to negotiate with a partner and also to give them an opportunity to contemplate the suggested changes is important, but so is the commitment to taking action if they are unresponsive or negative. Especially when the buyout is in alignment with the terms of the initial partnership agreement, those proposing a buyout often need to prepare to go to court to resolve the matter when the other partner is resistant to the suggestion.

A cooperative approach is often necessary to preserve the relationship in the long term, but preserving the business and someone’s investment in it should also be a top priority. Having a plan in place before initiating a conversation about a business buyout can take some of the stress and conflict out of the negotiation process.