How do you buy out a business partner?


Quick Answer

If the business partners have put buyout terms in the company's partnership or operating agreement, buying out a partner is a simple matter of following the provisions, obtaining a valuation of the business and closing the deal, according to Inc. If the partners have not determined a buyout procedure in advance, every step of the process must be negotiated, but would include a business valuation and a strategy for funding the buyout.

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Full Answer

The major aspect of buying out a partner is determining how much the partner's equity in the business is worth, explains Inc. A professional business valuation gives the partners an idea of how much the business would be worth if it was sold outright to a third party. The amount of money a partner can expect in a buyout is not equal to the amount of money he invested in the business, since the company can be profitable or not profitable at the time the partner wants to leave.

Ideally, the company's partnership or operating agreement outlines a buyout strategy that the partners can follow to handle all of the other issues involved with a partner's departure. These buyout provisions typically include the events that trigger a buyout, how the buyout financing can be handled, who can purchase the departing partner's share of the business and what financial and other obligations the departing partner must satisfy before he's completely relieved of responsibility for the business, explains Nolo. Without a written agreement in place, the partners must negotiate these terms when the times comes.

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