How do I buy a business with a partner?

Buying a business with a partner can bring more capital, complementary skills, and shared risk to a purchase that might be out of reach alone. It also means the two of you need to agree, in writing, on questions that are easy to skip past when the relationship is still good and the deal is still exciting.

Put the ownership and role split in writing early

Decide and document who owns what percentage, what capital each partner is actually contributing — cash, financing capacity, sweat equity — and what each partner’s actual role and authority will be in running the business. Verbal understandings about who does what tend to drift once the business is real and daily decisions need to be made quickly.

Plan for financing as a pair, not individually

Lenders financing an acquisition, including through government-backed small business lending programs, will typically require a personal guarantee from each partner, which means both of you carry the debt exposure regardless of how ownership is split on paper. Work through what happens if the business underperforms and the guarantee is called, since that conversation is far easier to have before closing than after.

Decide how disagreements get resolved before you have one

A partnership or shareholder agreement should set out how major decisions get made — unanimous consent, a majority vote, defined authority for each partner — and what happens if the two of you deadlock on something important. Leaving this undefined works fine until the first real disagreement, at which point an undocumented partnership has no mechanism to resolve it.

Plan the exit before you need it

• A buy-sell agreement that sets out how one partner can buy out the other — voluntarily, on death or disability, or after an irreconcilable dispute — and how that buyout would be valued and financed.
• Life and disability insurance funding a buyout, so a partner’s death or incapacity doesn’t leave the other unable to afford the buyout terms.
• A clear process for bringing in a third partner or investor later, if that’s ever a possibility, so it doesn’t have to be improvised.