Buying Out A Business Partner In California

By January 14, 2015Blog

Having a business partner is in many ways similar to a marital relationship. And, like a marriage, sometimes the partners need to “divorce” and go their separate ways. Buying out a business partner in California requires you to take into account various considerations. Doing so will generally require the guidance of a qualified business/corporate attorney.

There are many legitimate reasons why a partner may wish to leave a business, including:

  • Disagreement
  • Relocation
  • Divorce
  • Retirement
  • Disability
  • Death

There are many issues to consider when seeking to buyout a business partner in California. Amongst them:

  • Tax implications.
  • How the debts of the business will be allocated.
  • Whether the business is formally incorporated with the California Secretary of State or is a general partnership.
  • Whether the partner being bought out has made a capital contribution to the business, and if so, whether he/she is entitled to the return of this contribution.
  • Whether there are any pending lawsuits or legal issues that may affect the buyout.
  • Whether the buyout is amicable or acrimonious.
  • Whether the partner will continue to be an employee or continue to work in the business in some capacity.
  • Maintaining existing relationships the business has with its customers, vendors, suppliers, and other parties, as a consequence of the one of the partners leaving the business.

Here are some general steps you should take when buying out your business partner:

  • If there is a written partnership agreement, operating agreement, shareholders agreement, or other similar agreement, refer to it for instructions pertaining to a buyout. If there is no written agreement, but there is an oral agreement, refer to that agreement for the same purpose.
  • Engage a business consultant, accountant, or financial professional to help establish the value of your business.
  • Once you have agreed on the valuation, negotiate the terms of the buyout with your partner. In such an undertaking, you will likely want to retain a qualified business lawyer.
  • Once the terms of the buyout are agreed upon, you will need an agreement memorializing the understanding you and your partner have come to. Again, this is not a do-it-yourself project. You will want to retain an attorney experienced in this aspect of California law.

These–and other issues beyond the scope of this blog–require a skilled business attorney. We at Beverly Hills Law Corp., PC can evaluate your situation, assess your legal needs, and advise you accordingly. We provide business and corporate law services to clients in the Los Angeles, Beverly Hills, Santa Monica, Malibu, Encino, Sherman Oaks, Pasadena, Glendale, and other parts of Southern California. When the need arises, contact us for a free consultation.