Your business is your most important asset, and it is essential to make decisions that are going to help the company thrive and grow. When you are in business with a partner, you likely have a 50/50 partnership. In this case, both partners have an equal stake in the business, and both make decisions together. When it becomes necessary to make a change, you may need to think about a 50/50 partnership buyout. A knowledgeable business attorney will help you accomplish a successful buyout.
Business partnerships may end for a variety of reasons. A partner may retire or may pass away. Sometimes, partners decide that they no longer wish to stay together in the company. Regardless of the reason, when a partnership has to end, it is essential to end it properly. One of the first steps is to recognize that a buyout is needed. You want to be clear about what you expect or would like to happen with a buyout. Communication with your partner is extremely helpful to the buyout process.
Review Your Partnership Agreement
A partnership agreement will be essential in guiding a partnership buyout. A comprehensive agreement will address a buyout and how to handle it when it happens. This information will be useful because it will make the buyout easier. Both parties have already agreed to the procedure in place for a buyout, so this will alleviate some potential disputes. A partnership agreement can be complex, and it can be beneficial to seek help from a business attorney to review the terms.
Valuation of the Business
A critical part of the buyout will be the valuation of the business. Parties need to agree with the business valuation. Emotions can run high, and there are often reasons why a partner thinks the business has a specific valuation. A professional valuation is a prerequisite to a successful partnership buyout. A professional valuation will provide partners with a fair and objective value of the business. In the simplest of terms, the value of a business is its assets minus any liabilities. However, there are many complications, and the answer requires review.
Once you know the proper valuation of the business, you can determine a payment structure. A partnership agreement may already address this matter. If not, you and your partner must come to an agreement as to how payment for the buyout will be completed. Structured payments are a common way to accomplish a buyout. Payments may be relatively short-term, over several years, or they could be long-term, over multiple years. In some cases, particularly when the partnership relationship has deteriorated, a lump sum payment might be the best solution. A partner wishing to buy out the other may need to obtain financing such as a loan. Equity financing might be an option.
A 50/50 partnership buyout can be challenging, but you can accomplish it with guidance from a knowledgeable business attorney. Contact our legal team to discuss your business needs online at Moen Sheehan Meyer, Ltd, or call (608) 784-8310.