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Different ways to buy out your business partner

On Behalf of | Jun 1, 2023 | Commercial Transactions

A buy-sell agreement could be the document that saves your business from ruin if your partner in the business decides to leave. Your buy-sell can set terms to provide your partner with a fair price for his or her ownership interest. Paying your partner will be a major concern in your buy-sell document.

As Entrepreneur explains, there are different methods to buy out a partner. One of more of these mechanisms may the most prudent one for your company.

A lump-sum payment

If you want to pay your partner as quickly as possible, your buy-sell could offer a lump-sum payment. This ensures your partner gets a full payment in a single installment. A lump-sum is a good option if your business has the financial capital to fulfill it without endangering the solvency of the enterprise.

Pay your partner in installments

Some buy-sell agreements allow for a business to divide a payment into several installments. This could be an option if you fear your business will take a financial hit by funding the entire buyout in a single amount.

Compensating for ownership stock

If your partner possesses company stock, your buy-sell contract should explain how to compensate your partner for the stock and to transfer the shares to a new partner or back to the company. Your buy-sell may also restrict who to sell the stock to so you end up with a new partner you approve of.

If financing a partner buyout could prove difficult, you might take out an insurance policy for your company that can include a funding mechanism for the buyout. Buy-sell agreements are flexible, so you should be able to explore different options to protect your business.