Business Partnership Buyout Agreement
Business partnerships end due to many reasons. Sometimes there is a mismatching of goals, or one partner is reaching a different life stage, or one partner wants to sell and the other wants to keep the business operating as it is. In any case, when it’s time to buy out your business partner there are several legal complexities that must be handled well if you have to achieve a successful business partnership buyout.
In the best of the best situation, you were both thinking about this same situation ahead of time and you have a partnership agreement also in place – it’s
5 Factors to Consider in Partnership Buyouts:
1. Previous Buyout Agreements
If the business was set up correctly, then there should be a buy-sell agreement already. This will provide some protocols to be followed in the event that one partner wants to sell their part of the business, so it should be your first point of reference. However, many small to medium-sized businesses or enterprises are formed by friends and family members only. Due to this, a business partnership agreement isn’t created since the business is built on everyone's mutual respect. In such a case, if the business partnership breaks down, then things can get complicated.
2. The Business’s Value
If your partner wants to do your partnership, you’ll need to come up with a set value for your partner’s share in the business. Valuing a business can be complex, as it isn’t just the assets just like in real estate, income, and liabilities that should be taken into consideration. Determining what your business is worth takes time, so it can be beneficial to get a professional who can assist you in this task
In addition, you must consider the value of the brand, the ‘goodwill’ the business has, future growth capacity, and any impact the partner is going to leave will have on the business. This can make valuing the business yourself difficult, so it might be worthwhile to hire an independent party to have done the evaluation.
3. The Future of Your Business
The business partner’s value is normally defined by how active they are in the day-to-day running of the business. If your business partner is very hands-on, then you should consider how you’ll fill that gap. Will it require you to spend many times in the office managing their gr tasks? Overall, you’ll have to decide how you can keep the business running in their absence, in both the short and long term.
4. Financing the Deal
Partner buyout financing can be risky to obtain in some conditions. And if you don’t meet all of the lending requirements. However, if the business model stack is up and you get guidance from any financing expert, then you should be able to achieve your goal of buying out a business partner. If you’re serious about assuming full ownership of your business, partner buyout financing may be an important component in the procedure. In many cases, it can be very useful to take out a small business loan so that you have sufficient funds to make a buyout offer.
5. Making it Official
Once all the endorsements have been put in place, you need to make your buyout official, which involves completing all the important paperwork. In most cases, you should hire an assets attorney to review the documents and make sure that all the paperwork is legal.
Your ex-business partner might be your good friend and you’ve parted with on friendly terms, but you don’t know what the future holds.