Starting a business with a partner can speed up the formation process and make business ownership more accessible to a broader range of people. Those without hands-on management experience or sufficient liquid capital to fund an endeavor all on their own can, for example, partner with someone else to achieve their entrepreneurial dreams.
Unfortunately, business partnerships don’t always turn out the way that people plan. Sometimes, declining performance from one partner, interpersonal conflicts or changing goals may lead to strain on the partnership. Some people assume that the best solution in such scenarios is to dissolve the organization so that the partners can go through separate ways. However, a buyout could also be an option. Buyouts occur when one partner purchases the other partner’s interest in their shared company. The following circumstances are examples of scenarios wherein a partnership buyout may be a viable solution.
When the circumstances meet contractual standards
It is quite common for those beginning a new business partnership to discuss terms for a buyout in their initial agreement. For example, there may be a requirement that each partner commit a certain amount of time to the organization or that the company meets certain standards regarding its growth and finances. Oftentimes, those contemplating a business buyout will need to review their partnership agreement and other business documents carefully to determine whether or not they are in a situation where a buyout is even an option.
When the relationship is beyond repair
When there aren’t set standards for a buyout or when someone cannot wait, a buyout may still be an option. Perhaps they have proof of misconduct, such as embezzlement, that makes continued joint ownership a financial risk. Maybe a clash of personalities or management styles would undermine the successful operations of the company. In scenarios in which continuing to work together would endanger the business or its resources, a buyout could very well be an option.
When one partner needs to retire
Sometimes, it is not conflict but personal circumstances that necessitate a partnership buyout. Someone’s health concerns or changing marital circumstances may force them to reevaluate their ability to continue operating the company. One partner could propose a buyout to the other either because they need to retire or because they believe their partner cannot continue serving their role at the organization.
Planning a business buyout can be a lengthy process that requires great care to avoid damaging the business or the lasting relationship between the business partners. As a result, seeking legal guidance as proactively as possible is generally a sound approach.