A successful business partnership can be beneficial for both people investing in and operating a company. Partners share the financial risks inherent in starting a business together. They also divide the work involved, possibly based on availability or on established skill sets. They may each bring industry connections and prior relationships that can help the company become competitive.
Sometimes, business partnerships last for decades and are highly successful. Other times, they become sources of conflict. Partners may begin to resent one another for failing to follow through on promises or may no longer agree on their long-term plans for the future of the organization.
In such scenarios, one partner may aspire to buy out the other and assume sole ownership of the company. Who ultimately determines when a buyout is possible?
Partners may have already set those terms
Most strong partnerships begin with a number of thorough documents. The partners negotiate a partnership contract with one another. This document usually details the compensation each partner can expect to receive and the contributions they must provide. Setting terms for a buyout in a buy-sell agreement is also a relatively common practice.
Having the foresight to negotiate terms for a buy-sell agreement in advance makes it easier for partners to move forward with a buyout when the relationship starts to decline. The buy-sell agreement may indicate what type of valuation process is necessary and how to appropriately compensate the partner who gives up their interest in the company. Upholding the terms of the agreement can make the buyout process relatively simple.
If there is no pre-existing buy-sell agreement, then the partners may need to negotiate at a sit-down meeting. Typically, the partner proposing the buyout should come to the table with a reasonable introductory offer. They can then negotiate terms based on the demands of their partner and any concessions that they need to make because of the state of the company or other factors.
Those hoping to successfully terminate a business partnership by acquiring sole ownership of a company may need assistance reviewing documents and preparing for what can be a very challenging negotiation process, and that’s okay. Given all that is at stake, having legal representation is important during any major business transaction, including a partnership buyout.
