Buying out a business partner

So you and your business partner started a business and spent years building it up into a profitable enterprise, but now all of a sudden your business partner wants out. It’s a shock – what are you going to do. You don’t like the idea of a new partner coming in and potentially ruining something you’ve been working on for so long. What’s the solution? You buy your partner’s share of the business of course.

In many ways buying your business partner’s shares is a lot more straightforward than buying a business that you don’t know anything about. For one thing, you already have an intricate knowledge of how the business works. You know what the turnover is, you know the staff, the software, the infrastructure. You know your partner. But what if you’ve fallen out with your partner? Then things could get a little tricky if you didn’t set up an agreement to control a buyout package when you initially set up the company.

But if you did have an agreement, and you can agree on a valuation of the business, then it could be as simple as updating the statutory registers and notifying Companies House.

Business valuation for selling to partner

Valuing a business is tricky because if you are not listing it on the open market then it is speculation. It is quite common in this kind of situation for the buyer and seller to have different ideas of how much the business is worth if you can come to an agreement on this then the hardest part is done. It takes patience and compromise.

Negotiation to sell a business to partner

You and your partner may wish to instruct a valuer to assess what the company is worth, to value it. This is usually done using a variety of methods such as examining turnover and predicted growth and studying the value of other similar businesses.

If you cannot afford to buy your partner’s shares outright, you may be able to come to an agreement whereby you purchase the shares in installments.

Remember that although buying out an existing partner’s shares of your company is in many ways more straightforward in a legal sense, it can be much more difficult emotionally and psychologically. This is why it is important to have an independent third party to assist you in your negotiation.