Every business partnership starts out with high hopes, warm feelings and the best of intentions. But over the course of operations, issues can arise that create bad blood and impact the company’s potential. If you are in a position where you are unable to mediate the challenges you’re facing and the partner(s) in question aren’t interested in selling, you may need to attempt a forced buyout.
If a forced buyout sounds unpleasant, it often is. The process starts with examining your original partnership agreement to see whether it includes terms for addressing this specific type of situation. A well-crafted agreement will include a provision triggered by specific circumstances, with the most common including:
- A partner’s disability or incapacity that renders them unable to uphold their responsibility to the business
- A partner’s decision to retire
- A partner’s failure to fulfill their responsibilities as outlined in the original agreement
In many cases, the third of these will arguably meet the mandatory buyout provision, and open the door to a negotiation about the business’s value and assets.
Unfortunately, not every partnership has the benefit of having a comprehensive agreement in place. It is not uncommon to find that mandatory buyout language has not been included, which means that you’ll need to find another option for forcing a buyout.
Much of your ability to pursue your goal will depend upon the type of entity you’ve chosen for your business structure. Corporations are conducive to forcing buyout because each partner is considered a shareholder. This puts all other shareholders in the position of forming a majority that can override the targeted partner’s objections. The same is not true of a partnership or limited liability company with only two partners, in which it is more likely for each partner to have an equal share.
Unfortunately, if no language is in place to guide a mandatory buyout and partners cannot come to an agreement about a buyout, the only solution may be to dissolve the partnership entirely. This process involves paying off all debt and resolving all of the business’ outstanding legal obligations so that the company assets that are left can be distributed. Though this may seem like a radical choice, it may be the only way to move forward.
For assistance in navigating a challenging partnership situation, your best option is to turn to experienced business attorneys. Contact our firm today for guidance.