How Do I Buy My Partner’s Share of the Business?
When two partners go into business together, it is often with the intention of splitting the profits, sharing responsibilities, and working as equal stakeholders in the success of their venture. Sometimes, things do not work out as planned, and one partner may decide they want to buy out the other. If you and your partner are considering this option, understanding how to value and negotiate a buyout is key for a smooth transition.
When one partner wishes to buy out the other, there are typically good reasons behind it. One common reason is that a partner may have been unhappy with how things were running and wants to take full control. Another reason could be that one partner simply needs more money than the other and would rather receive cash for their shares than continue as a business partner. Whatever the case may be, it is important that both parties are on board with this decision before proceeding further.
The first step in negotiating a buyout is determining how much money it will cost. This requires having an accurate valuation of the business. To get an exact figure, you can hire an appraiser or accountant who specializes in valuing businesses.
However, if you do not have access to those resources, there are other methods that can give you a ballpark figure. For instance, you could estimate what revenue or profits would be fair for both parties based on market trends or industry averages. You could also look at comparable businesses that have recently been sold and use their sale prices as a guideline. Each party can offer an opinion on what they think would be a fair value for their shares based on their knowledge of the business and its financial position.
Once you have agreed upon a price for the buyout, you will need to decide how payment will be structured. Often, this involves breaking up payments over time rather than paying upfront in full—this allows both parties to spread out cash flow obligations over several years and avoid large immediate costs. When structuring payments, you should consider any tax implications that come with different types of payment options (e.g. lump sum versus installment). It is prudent to consult with your accountant or lawyer when making decisions about payment terms so that everything is accounted for appropriately.
Formalizing a Buyout Agreement
After deciding on price and a payment structure, it is important to formalize these agreements in writing so that all parties involved understand their obligations moving forward and legal action can be taken if needed in the future. Besides detailing the purchase price and payment schedule discussed above, these documents should also include provisions regarding ownership changes, such as transfer of stock certificates or filing new articles of incorporation, if applicable, any liabilities each party is responsible for, non-compete clauses, and confidentiality agreements.
An Ocean City Business Lawyer at Oliveri & Larsen Can Ensure Your Buyout Meets Your Needs
Regardless of why a partnership is ending, if you want to continue operating the business, you will need to take certain steps. Speak with an Ocean City business lawyer at Oliveri & Larsen today. Contact us online or call us at 410-295-3000 to schedule a consultation. Located in Annapolis, Maryland, we serve clients in Ocean City, Anne Arundel County, Baltimore County, Baltimore City, Calvert County, Harford County, Howard County, Queen Anne’s County, St. Mary’s County, Worcester County, Kent County, and the upper and lower Eastern Shores of Maryland.