Professionals who start business partnerships often do so with the intent of working together until they achieve certain long-term goals. However, not all partnerships last until retirement or the completion of other goals.
Sometimes, one partner decides that they want to acquire the other’s interest in the organization. They do so by proposing a buyout. During buyout negotiations, business partners negotiate terms that allow one partner to assume sole ownership of the company.
Partnership buyouts can take months to complete and can have major implications for both of the partners and the organization that they started together. Many people find the idea of proposing a buyout to be uncomfortable. They may feel more confident when they understand that their situation is not unusual.
What are the most common reasons that people try to buy out their business partners?
Performance issues
People typically enter business partnerships with specific expectations for their partners and the organization that they start together. Maybe one partner does not commit the number of hours they promised to the company on a regular basis. Maybe they never followed through with financial investments. Perhaps they simply do not contribute enough value to the organization through the services that they provide. In any of those scenarios, a partner might decide that their best option is to acquire sole ownership, possibly with the goal of eventually bringing in another partner or investor.
Concerns about misconduct
Occasionally, one partner has reason to believe that the other may have breached their fiduciary duty to the organization that they started together. Perhaps they have gathered financial records that show a pattern of self-dealing or embezzlement. Maybe nepotism during hiring is the main concern. Proposing and negotiating a buyout can be particularly difficult in scenarios where one partner alleges that the other did something to harm the business they started jointly.
Changes in goals and plans
Perhaps one partner has begun talking about their desire to retire early or to move into another industry to further develop their career. Maybe a competitor tendered an offer for the business that led to the partners disagreeing about when they should eventually sell the organization. In scenarios where the partners no longer have the same long-term vision for the company, it may be necessary for one of them to assume sole ownership by buying the other’s interest in the company. A partnership buyout scenario typically requires careful paperwork reviews and thorough contracts to protect both parties and ensure an appropriate solution.
Getting the right assistance when preparing for a potential conflict with a business co-owner can take some of the risk out of the process. Partners who intend to propose a buyout may need help reviewing the requirements and crafting a tempting offer for their partners. Seeking personalized legal guidance is a good way to get started.