Help with a Voluntary Exit from Your Partnership (Buyout)
Help with a Negotiated Buyout
It can be very difficult to get out of a partnership if the relationship has soured. You’ll meet resistance to the price you want and you ‘ll have a hard time getting clear of liabilities. It’s important to handle the negotiated buyout very carefully.
Cut the Stress. If Your Partnership Cannot Be Fixed, Get Help Negotiating a Voluntary Redemption of Your Interest.
When you feel like your situation is hopeless and you need to get out of your partnership, get advice before you start talking with your partner about leaving the business. If the partnership has soured, your partner may be happy that you have decided to leave. Under those circumstances, you probably aren’t going to get much for your interest. The bigger problem may be your on-going responsibility for taxes and other liabilities. Taking $1 for your interest doesn’t free you from the obligations incurred when you signed the lease and if the business fails later, you could get a bill for the balance left on the lease.
The first step in getting out of the business is to review your Operating and Partnership Agreements. If those were never drafted, you still want to gather all the information on everything you signed with an obligation. That includes leases, lines of credit, credit cards, and any other debt that the partnership took on. It’s not about getting your partner to agree to assume your portion of the debt; the creditors must agree to release you. This can be the hardest part of getting out of a relatively young business. If the business has a decent track record of paying bills, the creditors are more likely to agree to your release.
We Have No Money for a Buyout? No Problem. There Are Other Solutions.
There is usually a cash shortage to fund a buyout when the partners are feuding. It is also very difficult to raise money for a buyout because investors don’t like to see their money leave the business. But there are lots of workable alternatives to buyout. If a buyout is necessary because the parties cannot reconcile, we can figure out secure, creative financing that will work in even the toughest situations. The most important thing is to stay calm and positive. Don’t make threats. Don’t walk away. Don’t harm the business.
There are alternatives to buying each other out.
A buyout isn’t the only answer. Often we can find ways to help get the partnership operating smoothly. In many cases, a stressed partnership can be worked into a civil, functional and profitable relationship. Sometimes that is as simple as restructuring responsibilities and getting written agreements in place. Sometimes a business can be divided.
If the situation is very bad, it may be best if the partnership is dissolved and the business liquidated. That’s harsh but it may be your best option. There are some situations where a client should dissolve the business to prevent a future exposure.
Act While You Can
If you act while it’s still possible to talk with your partner and before the business gets into trouble, you might reach a decent agreement. If you burn out and stop participating in the business, you could lose your interest if the case goes to court. It’s always better to avoid the fight rather than be subject to any risk. Anything can happen in court.
Where Do You Start?
Get advice. Once the reality of your position is sorted out, you can make an offer to your partner and open negotiations for your voluntary redemption of interests.
My rates are a fraction of the cost of getting attorneys involved. Once an agreement has been reached, you can have a lawyer review it. That’s cheaper for all concerned.
If you are in a partnership and need to get out, call me for a free, no pressure, no obligation, consultation. Even if we don’t end up working together, you will feel a lot better after we talk.
Chris (530) 467-5690
Video Conferencing is sometimes riddled with issues. If you’re working remotely this should give you a good laugh. Enjoy, Chris Reich
When the business partnership breaks down, the darker sides of the personalities come through. A dominant partner turns into a bully. A person who does not do well with conflict will withdraw. As the bully gets more aggressive, the pacifist withdraws further. Eventually, the bully gets so angry they are ready to lock the other partner out. The pacifist quits coming in. The next blowout is over money. The course is as logically predictable as what will happen to your car if you hit the highway with no oil in the engine. It will get louder and louder until the engine seizes.
I recommend that partners talk through a specific issue and then draft an agreement (called a resolution) that sets a policy. You can keep this in a binder to serve as amendments (or foundation) to your Partnership Agreement. In this post I’ll explain how to talk about things that bug you with your partner and how to draft a binding resolution to fix the problems.
Unless you are in some sort of political business, you should keep politics out of your establishment completely. Of course, you have freedom of speech, but we are in very contentious times and displays of political or religious positions might be off-putting to to your customers.
Even when people get along well, having one partner’s relative handling the books just isn’t good policy. There is an inherent conflict of interest.
Many partnership disputes begin around expectations not being met. But were they ever defined in the first place?
If you have a problem with a business partner. Let me offer two pieces of advice:
- Don’t wait to act. A problem with a business partner will only get worse. That means more expense to resolve, more stress than now, and less chance the business will survive.
- DO NOT make any comments to your partner like “I just want out” or “I don’t care what I get; I just want out”. Statements like that weaken your negotiating ability. You may find that the other partner may see this as a green light to take even further advantage of you. Never, ever make those statements. Once we sit down with all parties to settle your situation, we can propose that you exit free of all further responsibility and liability. But we never want to make those statements until it’s time for serious negotiations. You have rights. Don’t throw them away.
Chris Reich (Pronounced Rich)
1+ (530) 467-5690
9:00 a.m. - 5:00 p.m.
Pacific Time Zone
Yes, I work nights and weekends by arrangement. Call any time. I will always get right back to you.
Clients who have worked with lawyers, counselors, consultants, and coaches often tell me that my business mediation service is the best and least expensive way to fix a partnership.
— Chris Reich, Business Mediator