Buying Out a Business Partner
If the time has come to part ways, or you feel it coming soon, you may have questions relating to buying out a business partner. The process can be complex, and depending on circumstances, it can be difficult (though it doesn’t have to be, sometimes a mutual agreement is easy to come by).
A few steps that go into buying out a business partner might include:
Negotiating a Mutual Agreement
When you formed your partnership, you may have set up a buy-sell agreement. If so, you already have an outline in place as to how things should take place. If not, you may need to work together to negotiate a mutual agreement.
Things to consider include:
- Capital investments.
- Current percentages of ownership.
- Shares (if applicable) and their relative value.
- Business earnings and personal investments into it.
If one partner wants out, or something else is forcing the move, this agreement might be easy to come by. If so, you should work with your partner on an Assignment of Membership Interest form to facilitate the deal. Generally, this form is created by an attorney and will detail terms that are designed to protect both partners after the sale is completed.
Examining the Operating Agreement
If an agreement cannot be reached between yourself and your partner, it may be time to examine the signed Operating Agreement that created the partnership in the first place. It may have buy-sell provisions or procedures if a buyout dispute occurs.
While many Agreements do not contain a provision for such a situation, it is in your best interest to do your due diligence by checking.
It may not be what you want to hear, but, it may be what’s necessary.
If you cannot reach a mutual agreement for buying out your partner and the Operating Agreement does not contain the relevant provisions, as mentioned previously, it may be time to start over again. This means leaving the company and starting again.
If this action is necessary, extreme caution must be taken to ensure the remaining partner cannot allege sabotage, taking trade secrets or any other number of negative possibilities.
Regardless of the path chosen, it’s critical to work with an experienced business law attorney, like Michael Hynum of Hynum Law prior to taking any action. If you’re currently involved in a partnership and not looking into buying out a partner, it may still be worth your time to examine your current operating agreement with an attorney and to discuss changes to protect both partners in the future.
Ready to get started? Have questions? Set up a consultation with Hynum Law in Harrisburg, Pennsylvania today. We look forward to working with you.