How do I buy out my business partner?

A partner buyout is one of the most common ownership changes a small business goes through, and also one of the most likely to go wrong if it is handled informally. The steps are straightforward, but each one has room for real conflict if it is not approached carefully.

Start with the agreement you already have, or do not

If your business has a shareholder or buy-sell agreement, check it first. It may already set out how the shares are valued and how the buyout is funded, which removes most of the negotiation. If there is no agreement, you are negotiating from scratch, and it is worth getting a lawyer involved early rather than agreeing terms informally between yourselves.

Getting to a fair price

An independent valuation, prepared by someone with no stake in the outcome, is the most reliable way to avoid a dispute over price. Both partners should be able to see the same numbers and the same method. A price one partner simply proposes, without independent support, tends to be contested later even if it was agreed at the time.

Financing the purchase

• Cash on hand can cover it, if the business or the buying partner has enough.
• A bank loan can fund the purchase, potentially supported by the Canada Small Business Financing Program.
• A vendor take-back lets the departing partner finance part of the price over time.
• Corporate funds can be used, structured so the buyout does not strip the business of its working capital.

Closing it properly

Once price and financing are settled, a lawyer needs to document the share transfer, update the corporate records, and release the departing partner from any personal guarantees they had signed for the business. That last step is often missed, and it can leave a former partner financially exposed to a business they no longer own.