If you’ve entered into business with someone, there’s no guarantee that the business partnership will last. Over time, your business partner may develop a new venture they would like to explore, or they may have a different vision for the company.
To buy out your business partner, you must know the legal processes involved.
Keep reading to learn how to buy out your business partner, when you might need to buy a business partner, and the processes involved.
Why Buy Out Your Business Partner?
There are many reasons to buy out your business partner. A business partnership can be filled with disagreements, or one party may have lost interest in the business.
If you can’t agree with your business partner over business strategy and operations, things can become tense and disharmonious, impacting the business’s overall health.
It might be time to buy out your business partner if you and your business partner need to be aligned regarding your passion or vision for the business.
Buying out your business partner needn’t cause disharmony between you, and navigating the situation respectfully and carefully can create a win-win outcome. Having a meeting to discuss your differences or your partner’s waning interest in the business can help you to develop a plan for buying out your partner or resolving your differences.
To navigate this conversation delicately and diplomatically, enlist the services of a mediator or consultant. These conversations can be particularly challenging if both parties want to stay in business.
Buying Out Your Business Partner: Advantages and Disadvantages
To help you determine whether this is the suitable course of action for your business, here are the advantages and disadvantages of buying out your business partner.
Advantages of buying out your business partner
Here’s what you stand to gain from buying out your business partner:
- Clarify your business strategy – if your business partner has different ideas for the business, you can clarify your business strategy by buying them out. There will be a single authority for decision-making and business strategy.
- Gain control of your business – with your partner out of their seat with the company, you will have more control over the business, able to pursue your vision for the company.
- Keeps the business going – if you and your business partner can no longer maintain a productive working relationship, you can agree without selling the company or shutting the business down.
Disadvantages of buying out your business partner
Here are some of the negative consequences that could result from you buying out your business partner.
- Affecting your personal relationship – although buying out your business partner is supposed to be an amicable arrangement, the process may impact your relationship with your business partner.
- More liability and responsibility – when you buy out your business partner, you take on their share of weaknesses and obligations for the business.
How to Buy Out Your Business Partner
Below is a list of the steps and processes involved when buying out your business partner. Having some knowledge of the process can prepare you and give you an idea of what to expect:
- Business valuation – to understand what your partner’s share of the business is worth, you will need to have the company valued by a professional.
- Employing a lawyer – you’ll need a lawyer specializing in buyouts to help you negotiate the terms of the buyout agreement.
- Financing the buyout – you may need more funds to buy your partner out on hand, so you may need to speak to a specialized lender offering buyout loans.
- Negotiating an agreement – you’ll need to arrange the buyout terms and whether your partner will still be a consultant for your business. Intellectual property is usually the most challenging aspect of these negotiations.
- Make an agreement and lay out the structure – once you have come to terms, you can agree and lay out plans for the future that avoid future disputes, such as a non-compete clause.
- Transferring funds and restructuring the business – when you’ve agreed upon the terms and the plan for the future, you can transfer the funds to your partner to buy them out. Following this step, you can update your business information to reflect the change in leadership.
Summary
If your business partnership isn’t favorable for the business’s success, it might be time to come to an agreement and buy your partner out. Reaching out to a legal professional is essential, ensuring compliance and mediation throughout the process. Consider the benefits and disadvantages of buying your partner out to decide whether this is the right action for your business.