When partners reach a business point where it is necessary to reevaluate the relationship and take a new approach, a business partner buyout can be an option you consider as the next step.
Steps on How to Buy out a Business Partner
These steps on how to buy out a business partner can help partners navigate this transitional season and make a business buyout work for everyone.
1. Consult the Partnership Agreement
A partnership agreement is an essential guide to help partners navigate the critical decisions that must be made in business, including dissolving the business. It is critical to the success of any partnership to know what to include in a business partnership agreement in order to outline in detail each partner’s responsibilities, the business’s goals, how conflict will be addressed, and the steps to take when one partner or both decide that the business relationship is no longer one they choose to be in.
Partners might also consider constructing a buy-sell agreement that provides separate guidance in case a partner leaves the business by choice or life circumstance.
2. Work with an Experienced Valuation Company
Understanding what the business is worth sets a value for each partner. Working with an experienced valuation company will allow each partner to prepare for what they may owe to buy out a partner’s share and what the other partner expects to receive as fair compensation. Talking worth and money, particularly among partners that experience personal ties, can be uncomfortable.
An appraiser can offer an unbiased, fair market value not only for the Houston property if partners own the business space but the value of the business operation.
3. Consider Restructuring the Partnership Agreement
Straightforwardly buying out a business may be a financial hardship. Business partners that have maintained the ability to work together amicably may consider a redistribution of investment. Money must continually be put into a company for operation. The amount of funds the buyout partner contributes can shift, allowing for a more gradual purchase.
For instance, initially, each partner may invest equally into the operation expenses of a business per the partnership agreement. Restructuring an agreement to allow the remaining partner to pay a more significant percentage of the costs while continuing to compensate the exiting partner for their specified income provides for a gradual process, potentially avoiding the challenges of financing from a financial institution.
Generally, this type of agreement would require an amicable relationship, requiring the partner to leave the business but still be vested, placing trust in the remaining partner to continue a standard of operation that will meet the buyout obligations. This type of arrangement should be carefully drafted by a Houston business attorney that can account for any failures in operation that would lead to a partner’s inability to cover the cost of a buyout.
4. Find a New Partner
A business partner may decide to leave the partnership, but if you are not at the place of wanting to operate a business on your own or have the financial capability to buy the business entirely, an alternative option for a buyout is to have another partner step in to assume the cost and responsibility of the partner leaving the business, providing a more cost-effective approach.
As much as you value the business and are committed to its success, being the sole owner of a business creates a new level of challenges. Finding a new partner with common goals to fill the vacant role created by the partner leaving can create further support and stability for the business, providing relief in an emergency that may require you to step away for a brief period.
It is impossible to plan for every emergency, but the more prepared you are for business emergencies, the easier it is to ride out unexpected circumstances.
5. Work With an Investor
If being solely responsible for the business’s life is a task that you can conquer but obtaining finances is challenging, consider working with an investor to secure the company’s buyout. Many individuals look to invest financially in growing businesses while taking a step back from daily operations. An investor can be somewhat of a silent partner, contributing monetarily without having a say in how business is conducted daily.
Again, a Houston business attorney with an in-depth understanding of fiduciary duties and business operations should facilitate these business relationships and agreements.
6. Craft the Payment Agreement
Once a purchase price has been agreed on, a Houston contract and drafting attorney can facilitate the payment arrangement to ensure that the legal complexities have been addressed, relieving the existing partner of any obligation and / or outlining the gradual exit process. There may be significant business details that the exiting partner managed that the remaining partner feels uncertain about. Having an exit strategy ensures the continuity of the business and allows a reasonable changing of the guard.
In addition to the payment agreement, it may be in the business’s best interest to incorporate a non-compete or non-solicitation clause to protect the business and its relationships if the existing partner decides to start a similar business. Your partner will leave with the skills, knowledge, and abilities that helped situate the business where it currently exists. Avoiding all competition may not be possible, but preventing the loss of business or trade secrets will help ensure that your business stays secure.
Contact Feldman & Feldman to Ensure a Successful Houston Business Buy Out
Embarking on the buyout of a business partner requires preparation to avoid similar complications or challenges in the future. The process does not always happen because of conflict. Sometimes it is the natural evolution of a business.
Regardless of the circumstances, preparing for a stable business future is possible when you work with the experienced, passionate Houston contract lawyers at Feldman & Feldman. Our success in business litigation continues to benefit Houston business owners through every phase of operation. Our team takes on our clients’ business litigation challenges with the strategic goal of ensuring their success. Contact us today to find out how we can help your business.