3 steps to decrease the conflict in a partnership buyout

Some business partnerships last for decades. Others start to struggle shortly after they begin. While people may have intended to run a company with their business partner for years or even decades, they may eventually need to propose buying out their partner or ask them to buy them out instead.

A partnership buyout can potentially damage the business and the lasting relationship between the two partners. How can people approach the buyout process if they want to minimize conflict?

Comply with existing contracts

One of the most important factors in a partnership buyout is the terms previously set by the partners in their partnership agreement. Someone hoping to exit the company or purchase it from a partner may need to review their partnership agreement. That document can include certain rules for the buyout process that the partners will need to follow. Failing to review and comply with the agreement and other relevant contracts could lead to conflict and even litigation.

Set a value for the company

A buyout requires compensating someone for giving up their interest in the organization. That compensation may represent a specific portion of the organization’s value based on initial investments and also the likely future income a partner will sacrifice by accepting the buyout. Many different valuation approaches can work in different scenarios. The partner proposing the buyout will need to choose the right valuation method based on the business type and other factors. That valuation will likely play a key role in negotiations with the partner.

Discuss the issue calmly

A buyout conversation could very easily turn confrontational, with one business partner accusing the other of misconduct or poor job performance. That approach may be cathartic but will likely lead to more conflict between the partners.

If someone wants to avoid litigation, they need to approach the matter calmly and give their business partner time to consider the idea before forcing them to make a decision. Someone who comes to the table with a specific offer may have an easier time convincing their partner that the buyout is a good option than someone who rushes into the conversation before they have addressed practical concerns. As a final note, it is often necessary to execute special contracts at the time of a buyout to protect the business from unfair competition or future lawsuits.

Employing the right tactics while preparing for a business buyout, and seeking legal guidance accordingly, could take much of the stress and conflict out of the process.

Contact The Firm