A business partnership is much like a marriage. Two people agree to work together, often indefinitely, and to provide ongoing support for each other. Eventually, the relationship may devolve into something unhealthy, leading to declining company performance or major tensions in the workplace.
Scenarios involving suspected embezzlement, poor professional performance and interpersonal disputes may lead to one business partner hoping to buy out the other, which is – essentially – the business version of a divorce. What should the partner desiring to retain the company do as they prepare to propose a buyout to their partner?
1. Review the partnership agreement
The one document that will likely have the most bearing on the buyout process is the partnership agreement signed at the beginning of the professional relationship. It’s common for partnership agreements to include conflict resolution clauses and buyout rules. The partner proposing the buyout will need to look over the contract to ensure that they meet the terms established in their initial agreement with their partner.
2. Perform a business valuation
A fair buyout should be a reflection of both what someone has already invested in the company and what the company is worth. A business valuation reflects a company’s assets and also the likely future Revenue it will generate. A careful and thorough business valuation can put a partner proposing a buyout in a good position to suggest specific terms that are reasonable for everyone involved.
3. Approach the discussion with compassion
Even in a scenario where one partner suspects misconduct on the part of the other or resents their poor work performance, a hostile approach likely isn’t the right solution. Those who are compassionate and flexible when suggesting a buyout are more likely to achieve their goal. From giving a partner time to consider the suggestion before forcing them to answer to framing the buyout in a manner that reflects both partners’ current circumstances, the right approach will help the partner proposing the buyout reduce the conflict involved and increase their chances of success.
A successful buyout offer can keep a company operational while allowing one partner to move on. It can also potentially preserve the relationship between the partners, which might not survive a trip to court or the forced dissolution of their company. Seeking legal guidance to fine-tune an approach to a partnership buyout can minimize the risk and stress involved in what can often be a very difficult conversation.