Buying out your business partner

By Hector Freyne, trainee solicitor, Goodman Derrick LLP.

The pandemic has afforded most of us time to stop and ask ourselves what we really want from our career going forward. Is now the time to shake things up and go in a different direction? Has the agency you set up run its course, is it time for something new? Or is it time to take the reins yourself and adapt your agency to take advantage of post pandemic opportunities.

Indeed, it might just be time to buy out your business partner?

This parting need not be acrimonious – in fact most buyouts are mutually agreed, a win-win. The partner with the most passion for the business gets a controlling interest, while the other gets to cash in the fruits of their hard work over the years.

Here are some key considerations to effect a buyout of your business partner:

Obtain a business valuation

You need to make sure that you get an accurate business valuation as a first step. This will ensure that you can set a fair price for your partnership buyout and that all parties are on the same page from the outset. It will also help you see whether taking sole ownership of the company is a good long-term investment.

Employ an experienced solicitor to negotiate the deal terms

Even with the most amicable of buyouts, having an independent solicitor to negotiate the terms of the buyout on your behalf is important. While you may not see the need, it is in everyone’s interest to keep proceedings as formal as possible. An experienced solicitor will have likely helped hundreds of people through the process successfully and they will make sure each party gets exactly what they agreed out of the arrangement.

There will be a lot of detail and technical considerations to iron out. For example, you will want to make sure the financial obligations of each party are clearly laid out and that all matters relating to liability are dealt with. Moreover, a common issue with many agency buyouts is what to do with the network of business relationships you and your partner have built up over the years. Without your partner in the business, some clients may no longer want to renew their contracts or initiate new projects. The transition needs to be managed very carefully, so take the time to go over all the details during the negotiations.

Consider financing options

You may have the finance to buy your partner out without needing any additional sources of funding. However, if this is not the case, you will need to work through your options and find the right financing strategy.

If your agency has a history of being profitable, you may be able to secure a small business loan. Some lenders however may avoid providing loans for servicing buyouts, because the money will not actually be benefitting the business itself. That said there are an increasing number of alternative lenders emerging who specialise in this kind of funding. Additionally your business partner may also be open to alternatives, such as creating a long-term payment plan rather than buying them out in one go.

Make sure a buyout is your best choice

It’s important to explore all options before committing to a buyout. Talk with your business partner about what your goals are and how you see the future of the business. There may be another way of allowing your partner to step away.

There are a number of other ways you could go about reducing your business partner’s involvement and influence the business without having to buy them out.

Indeed, if your business valuation comes back lower than you had hoped it might be best to dissolve the business, split the assets and go your separate ways.

LEGAL NOTICE

The contents of this article are for general information purposes only.  The information in this article does not consider the legal framework for each type of funding or constitute legal advice and should not be relied upon as such.  Specific legal advice relating to your particular circumstances should always be sought separately before taking any action.

Photo by krakenimages on Unsplash

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