Partnership Dissolution
We’ve written about succession planning, buying a business, and selling a business, and the importance of securing an accurate business valuation or asset appraisal in all of these scenarios. But what should you do in a partnership situation if one partner wants to sell and the other doesn’t? In this scenario, things can get a little more complicated.
Typically, if one business partner wants to sell and the other doesn’t, the partner who wants to stay in the business must buy out the other partner. The easiest way to handle this situation is to have written documents in place spelling out the circumstances under which a buyout can occur. These documents should be written when a partnership is formed, long before either partner would even consider leaving the business. But if these documents do not exist, there are still ways to handle this delicate situation effectively.
The first step is to determine the net value of the business. This includes all physical assets, like real estate or equipment, and all soft assets, like trademarks or business reputation. Also included in a business’s net worth are profits, as well as any outstanding debts or invoices. Determining the business’s net worth will help the partners decide, ideally through an intermediary, what to offer the partner leaving the business and how much money the remaining partner will need to raise in order to complete the buyout.
After the net value is determined, the partners can discuss the details of the transaction and make sure that their plan is feasible. In many cases, because this scenario can be difficult and emotional, it is best to hire a lawyer or a mediation professional to help in the process.
By: Present Value
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