Where Business And Law Come Together

What if your business partner wants to leave?

On Behalf of | Nov 30, 2022 | Business Law

You may find yourself in a situation where both you and your business partner are ready to be done, and you don’t have a lot of potential options. You can sell the business to someone else, for example. You could simply close the business down and liquidate the assets. Some people will pass the business on to their children and let the next generation run it.

However, you may discover that your business partner is ready to leave the company before you are. If they want out and you still want to stay, what happens?

Buying their percentage

Perhaps the easiest way to do this is simply to buy the percentage of the business that your partner owns. Maybe there’s just two of you and you both own it 50-50. You can have a valuation done and then pay them whatever they would get on the open market if you were to sell the business and split the proceeds. The main hurdle to doing this is simply that it could be cost prohibitive.

Using an exit clause

It’s also important to note at this point that your partnership agreement should ideally already have an exit clause. You simply have to follow this in accordance with the agreement that both of you signed. For example, some business partnerships will make it an obligation for the partner who wants to stay to pay the other partner and buy out their percentage of the business. This would mean that you have no choice in that situation, so it’s important to consult this document.

Bringing on a new business partner

Another option could be to bring on a brand new business partner who is willing to buy into the company by investing the same amount that it would take to buy your other partner’s share. Essentially, you’re just selling half of the business. This can get more tricky because you need to find someone that you trust to be your new business partner and then they have to agree to the valuation and ownership percentage. You may also want to consider bringing someone on as a minority owner by buying a portion of your current business partner’s share and selling a smaller percentage to the new partner.

Once you’ve made your decision, be sure you know what legal steps you’ll need to take to make it a reality.