TIRED OF YOUR BUSINESS PARTNER?  HOW TO SPLIT UP ON THE BEST OF TERMS 

I often receive calls from people who are looking to buy out, sell to, or simply remove another business partner. Often they ask what would need to be done, and how much it will cost. The answers to both of these questions depend on the facts, circumstances of the business entity, and also the personalities of the various owners. The following are some points to consider in order to help determine the scope of work to be completed.

Often, the organizational documents signed by the parties will provide specific rules on how the buyout is to be conducted, including timing and pricing. If the business was set up properly, you will have a Buy Sell Agreement which will have already set up the complete rules on all important issues relating to the buyout, including notice procedure, valuation, and financing. If you do not have such documents, then you are likely stuck having to get unanimous agreement from all the owners regarding the buyout terms and conditions - which is often a less than pleasant thing to do if the owners are at odds with each other.

Depending on your business structure and ownership arrangement, the steps to get consent and approval to do such buyout will be different. For example, the transfer documentation may be share certificates, or a simple bill of sale.

If so, they need to be fleshed out in an agreement to be signed at closing. If you don’t do this, you or the business may still be on the hook for claims and losses which you feel should be the sole responsibility of your old partner.

Often, third parties and governmental agencies will deem a transfer of a large percentage of ownership in a business as contrary to their interests and give them the right to call loans due, foreclose on business assets, evict the lessee business, or revoke licenses. Therefore, it is important for the remaining parties to determine if they can find a method to not cause such undesirable events.

Think through all that needs to be completed and come up with a plan to complete it. Further, make sure that the exiting owner agrees in writing to assist you in completion of the work.

Make sure that the exiting owner agrees to not disparage the business or you in any way. Most certainly, he or she will require the same of you too.

Consider requiring the exiting owner to sign a binding noncompetition agreement and nonsolicitation agreement. If you don’t, you may have a very imposing new competitor just around the corner from your business location.

In closing, this article was intended to give you an appreciation of some of the issues which must be addressed in order for you and your partners to appropriately work out a change in ownership interests. If done correctly, you will be able to sleep better at night, and perhaps even split up on amicable terms. If not done correctly, you may not only suffer needless heartache, but find yourself involved in a business that is suffering from the unintended consequences of your split up, and perhaps even litigation or a forced closure of the business. Careful planning and implementation of the split up process prior to buying or selling to your partners usually is the best, cost effective way to go.