One partner wants out and the other wants to keep going
A partner buyout has three moving parts: what the departing partner's interest is worth, where the money comes from, and what obligations follow them out the door. Most partnerships have a buy-sell agreement that answers the first and ignores the other two, which is why buyouts stall on funding rather than on valuation.
Written and reviewed by Antoine Campbell. Last reviewed .
Partner buyouts are emotionally loaded and mechanically simple. The mechanics are worth getting right first, because they cool the emotion down.
Read the buy-sell agreement before anything else
A formula written fifteen years ago frequently produces a number that has nothing to do with current value. Both partners are usually better off agreeing to update it than litigating it.
- What valuation method does it require: formula, appraisal, or agreed value?
- Is there a mandatory purchase, a right of first refusal, or nothing?
- What payment terms does it specify, and over how long?
- Is it funded, by insurance or otherwise, or is it a promise with no money behind it?
- When was it last updated, and does it reflect the business you have now?
Where the money comes from
| Source | Works when | Watch for |
|---|---|---|
| Company cash | Strong balance sheet, modest buyout | Leaves the business thin on working capital |
| Bank or SBA financing | Stable earnings and coverage | Guarantees, and lender rules on partner buyouts |
| Seller note from the departing partner | Both sides trust the numbers | Security and default remedies |
| Outside equity partner | Neither partner can fund it alone | You are trading a partner for a different partner |
| Sale of the whole company | Neither partner wants to carry it alone | Both exit; ends the disagreement entirely |
What has to be resolved besides price
The guarantee release is the one people forget. A departing partner who remains on the bank guarantee has sold their upside and kept their downside.
- Personal guarantees the departing partner signed and who releases them
- A non-compete and a non-solicit with a defined scope and term
- Ownership of customer relationships, intellectual property and equipment
- Continued compensation, benefits or company vehicles
- Real estate held jointly outside the operating entity
Where Maurant fits
When neither partner can fund the other and both are tired of the standoff, an outside purchase of the departing interest, or of the whole company, resolves it. We can also acquire control while the remaining partner keeps an equity position and stays in the operating seat.
What Maurant needs to evaluate this
- The current buy-sell or operating agreement
- Ownership percentages and capital accounts
- Three years of tax returns and current financials
- All debt and which partners guarantee it
- Each partner's role and compensation
- Any jointly held real estate
When Maurant is not the right buyer
- Active litigation between partners; that needs counsel before a buyer
- Disputes where the parties cannot agree on a valuation method
Questions owners ask
- Who values the departing interest?
- Whatever your agreement specifies. Absent that, a credentialed appraiser both partners agree on is cleaner than either side's number.
- Should the company or the remaining partner buy the interest?
- It changes the tax outcome and the balance sheet materially. Your CPA should model both before you choose.
- Is a minority interest worth its percentage of the whole?
- Usually less, because it lacks control and marketability, unless your agreement says otherwise.
Request a confidential seller review
This review is exploratory and does not promise a valuation, financing, offer, or closing.
Start a confidential review