When a small business starts out, multiple individuals will sometimes partner together or the original founder will bring in a third party to help establish the brand while it’s in its infancy. But things change, visions vary and eventually a small business can become too big for more than one CEO.
As your small business grows, more and more critical decisions are going to have to be made and it’s only natural that not everyone involved will eye to eye and agree on everything. When these disagreements come to a head, a buyout may be the only logical solution. But what goes into a buyout? How does the process get started? How can you, as the majority shareholder, make sure everything runs smoothly?
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Partnership buyouts are not always easy, so we want to help you get through a potentially trying time. Here are some general aspects you should understand before starting the buyout process:
Review the shareholder’s agreement
The shareholder’s agreement is what you and your partner agreed to when starting the business and it should have terms laid out in the event that a buyout were to ever occur. The shareholder’s agreement should serve as a road map as you and your partner navigate your way over the course of the buyout.
What’s the value of the business?
It’s necessary to know exactly how much money is at stake, so this step is obviously a top priority. If you don’t properly value the business or leave your partner out of money or equity they are entitled to, you could be in for legal issues down the road. To figure out the true value of your company, you must take things into account such as net income, assets, brand worth and anything else you deem necessary.
Hire the right legal counsel
Whether or not your buyout is amicable or acrimonious, you’re going to want to hire a lawyer. Assuming you’re not an expert in the realm of partnership buyouts, having the right legal counsel will help make sure you avoid any mistakes during the process and that everything goes swimmingly. Buyout regulations and laws vary by state, and an experienced mergers and acquisitions attorney will be able to guide through the procedures.
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Any buyout is of course going to be unique from business to business, but these general facets of the process will apply to all.
Published: March 20, 2015