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Partner buyouts happen for many reasons: retirement, a new opportunity, a disagreement about direction, or a death or disability.
Some are friendly and quick, and others start with a dispute. Either way, the departing owner and the remaining owners need to agree on the price, how and when it is paid, what the departing owner gives up, and what happens to the loans and guaranties the departing owner signed.
Ways to Structure a Buyout
Company Redemption
The company buys back the departing owner's interest, often paid over time from company cash flow.
Cross-Purchase
The remaining owners buy the departing owner's interest directly.
Bank Financing
A loan, sometimes SBA-backed, funds the price at closing.
Installment Payments
A promissory note, secured by the purchased interest or company assets, pays the price over time.
Starting With the Governing Documents
The first step is reading the company agreement, partnership agreement or shareholder agreement. Many include buy-sell provisions that set a valuation method, a payment schedule or a right of first refusal. When the documents are silent, the buyout is a negotiation, and we help structure it so the company and the remaining owners can carry the cost.
When the Owners Disagree
Buyouts that grow out of a dispute between owners need a different approach. Our litigation team handles those matters, and our partnership disputes page explains how. Many of them still end with a negotiated buyout, and we draft those agreements too.
How a Buyout Comes Together
Review the Governing Documents
We read the company, partnership or shareholder agreement for buy-sell terms.
Agree on Value and Terms
The owners settle the price, how it is paid and what the departing owner gives up.
Draft the Buyout Agreement
We prepare the purchase agreement, note and security documents, and releases.
Resignations and Records
The departing owner resigns any manager or officer roles, and the company's records and filings are updated.
Closing and Payment
The documents are signed and the first payment is made.
Frequently Asked Questions
Have a question that isn't answered here? Call us at (817) 631-8842 or send a message.
Ask a QuestionWhat if our company agreement doesn't address buyouts?
Then the terms come from negotiation between the owners. We help structure a deal both sides can accept, and we often recommend adding buy-sell provisions for the owners who remain at the same time.
Should the company buy the interest, or should the other owners?
Either can work. A company redemption uses company funds and keeps the remaining owners' percentages in proportion. A cross-purchase has the owners buy the interest themselves. Taxes, available cash and lender restrictions usually decide which fits, so we work through the choice with the client's CPA.
How is the departing owner usually paid?
Some buyouts are paid in cash at closing. Many are paid over time through a promissory note, with the departing owner protected by a security interest, a pledge of the purchased interest or guaranties from the remaining owners.
Does the departing owner have to sign a non-compete?
Not automatically, but most buyout agreements include one, along with confidentiality and non-solicitation terms. In Texas, a non-compete must be reasonable in length, geographic area and scope of activity to be enforceable.
More in Business Acquisitions
- Mergers and AcquisitionsBuyer and seller representation in Main Street and lower middle market deals.Learn More
- Buying a BusinessStructure, diligence, negotiation and closing for buyers.Learn More
- Selling a BusinessPreparation, negotiation and closing for owners selling their companies.Learn More
- Asset PurchasesBuying or selling a company's assets while the seller keeps the entity.Learn More
- Stock PurchasesBuying a corporation's shares, with its contracts and its history intact.Learn More
- Membership Interest PurchasesBuying an LLC's ownership under a membership interest purchase agreement.Learn More
- SBA-Financed AcquisitionsPurchase agreements and closings built around SBA 7(a) lender requirements.Learn More
- Seller FinancingSeller notes with clear payment terms, security and remedies for both sides.Learn More
- Earn-OutsContingent price terms defined clearly enough to measure, report and pay.Learn More
- Rollover EquitySellers reinvesting in the buyer, on terms that protect the stake they keep.Learn More
- Selling to Private EquityRepresenting owners who sell to private equity firms and PE-backed platforms.Learn More
- Search Funds and SponsorsVehicles, investor terms and acquisitions for searchers and independent sponsors.Learn More
- Franchise ResalesBuying or selling an existing franchise location, with the franchisor's approval.Learn More
- Letters of IntentSetting the price, structure and key protections before the deal is drafted.Learn More
- Due DiligenceFinding the legal issues in a business before the buyer owns them.Learn More
- Purchase AgreementsThe negotiated terms that decide who carries the risk in a business sale.Learn More
- Closing an AcquisitionChecklists, payoffs, funds flow and the follow-up that finishes a deal.Learn More
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