Aspiring entrepreneurs take on a business partner for all sorts of reasons. Maybe they did not have enough capital to qualify for a franchise opportunity on their own. Perhaps they simply lack experience running a business. A partner can provide the skills or resources that an entrepreneur does not already possess.
Partnerships help those who would like to run a company can make that dream more achievable. Unfortunately, they also lead to interpersonal conflict and challenges for those trying to run a company. When a partnership begins to struggle because one partner doesn’t want to do their job anymore or the conflict the partners have with each other starts affecting business operations, people sometimes think that the only viable solution is to dissolve the company. However, one partner also may be in a position to buy out the business and continue operating it.
How a business buyout works
When one partner wants to retire or run the company as a sole proprietor, a partnership buyout can be a viable option. One partner pays the other a certain amount to assume ownership of the company. Typically, those beginning of this partnership negotiate terms for a buyout before they ever start the company together.
A review of the initial partnership agreement can help people determine what specific details are necessary to successfully buy out a partner. Even if people did not have the foresight to discuss a buyout previously, a business valuation can be a way to establish what the company is worth and to start preparing a buyout offer.
Ideally, a buyout will allow one partner to recoup their investments and exit the company cleanly while the other transitions to running the business without their former partner’s support. Unfortunately, partners may disagree about the necessity of a buyout or the appropriate terms for one, which may lead to protracted and expensive conflict between the partners.
Those who have a realistic and balanced approach to the buyout process can often maximize their own financial recovery and diminish the long-term impact that the transition will have on the business’s success. Looking over company records with an attorney can be a good starting place for those preparing to offer a buyout or respond to an offer from their partner.
