Sep 23, 2008
How to Buyout a Business Partner?
by Bi3ard
 When your business partner is leaving due to various circumstances, be ready to buyout its share rather to pass it own to the new owners and partner without ‘a fight’.
As an owner, you have probably more than enough headaches, from organizational papers, contracts and tax forms to making sure that the work is done. If your business is in a form of partnership with one or more partners, then the work load is probably smaller.
But what happens when you or another owner retires, divorces, dies or just decides to move on. Will you just sit and wait or you will do something before your partner leave your business.
Most owners make a huge mistake and ignore the fact that sooner or later your business will lose owners and perhaps gain new ones. When that time comes and ownership interests change hands, conflicts often arise. Those conflicts can upset the functioning of a small, closely managed company.
Before this happens, you should check these possible bad scenarios and prepare for them:
- One of your co-owners demands you buy him out for an unreasonable price, at a time when the company is under financial strain.
- Your longtime friend and business partner gets Alzheimer’s disease and his caretaker demands to cash out his ownership interest right away.
- Your business partner gets divorced and partner ends up with an ownership interest as part of the divorce settlement and tries to interfere with management to get even with his/her life partner?
- The majority owner of your company wants to sell her share to a stranger or someone you know well and you can’t stand.
- One of your co-owners becomes alcohol or drug dependent, with the result that his/her conduct is risking the reputation of the company. Can you kick him/her out?
- An older co-owner wants to give half of his interest to his notoriously irresponsible son or daughter, who has never worked for the company, and elect him/her to the board?
The answer to all these questions is the same.
If you haven’t made a sound agreement to anticipate and deal with these problems before they happen, you’re taking a risk that friction will arise between owners who will remain at the company and a new owner or a departing owner.
Most of the time, this tension occurs because the remaining owners don’t want to be forced to work with and share control with an unqualified, inactive or unlikable owner. This happens mostly because most small business owners own their own business because they want to run things their way, or at least share their management with co-owners with whom they can comfortably and easily deal or agree.
When such tension between owners arises, it can lead to serious personal and business discord. These problems might even be fought out in court or result in the demise of your company.
To avoid these conflicts, you and your co-owners should arrange matters so you’ll be able to collectively control who will own and manage the company in the future, before the problem happens.
In other words, if someone wants to buy into the company, you and the other owners can have a say. If an owner wants to give his share to his kids, you and the other owners may say what you think about that decision. If one owner wants to retire, but hold on to his interest, you and the other owners may want to rearrange things.
That’s why it’s best to set some ground rules before it’s not too late.
Also, there are many other bad scenarios that can be worse than those who are mentioned in this article and you should think about all of them before single problem regarding ownership and your business partnership occurs.
Always consult your solicitor or legal advisors and discuss all possible scenarios with them.
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