People frequently begin business partnerships expecting them to last indefinitely. One partner may expect to continue working with the other until they retire, die or sell the business. However, those expectations may not necessarily be realistic.
Partners may eventually start thinking about other opportunities. They may experience a change in their relationship with each other that makes their shared business less rewarding. Some partners choose to dissolve the company that they started together to move on with their lives. Other times, one partner proposes a buyout in which they purchase the other’s interest in the company. A partner contemplating a buyout likely needs to plan carefully to optimize their chances of success when negotiating with their partner.
Reviewing the original agreement
The documents created when forming the business can play a major role in the buyout. The partners may have already set certain expectations for buyouts including how much advance notice is necessary and what investments each partner deserves to recoup in a buyout scenario. Looking at the original partnership agreement and the business formation paperwork is an important step when deciding how to approach a buyout proposal.
Conducting a thorough financial review
Business formation documents and partnership agreements aren’t the only records a partner has to review before a buyout. They also need to look carefully at recent company financial records. They need accurate information to establish a realistic company valuation. They may also need operational and financial details to convince their partner that the buyout offer is appropriate. In some cases, a review of financial records can provide proof of misconduct or professional failures on the part of a partner that may help push them into accepting a buyout offer.
Making a reasonable but flexible initial offer
Especially if there have not been discussions of buyout previously, the partner proposing the transaction needs to be patient. They may need to give their partner time to consider the offer. Giving a partner an opportunity to review the offer and the financial records of the company used to justify that offer can be helpful. Partners may need to negotiate directly or may even need to attend mediation if they hope to settle their disagreements about what terms are fair given the investments each party has made in the shared business.
Preparing fastidiously can decrease the likelihood of major disputes and operational disruptions when proposing a partnership buyout. Partners who make reasonable offers based on current financial circumstances may have a better chance of succeeding, especially if they remain cooperative and flexible as they negotiate terms with a partner.
