What to Do When One Partner Refuses a Buyout Offer
Going into business with someone has many rewards, the greatest of which include having someone to share the responsibility with, having a second perspective, and having someone to swap ideas back and forth with. On the other hand, partnerships can be tricky because many times, both (or all, if there are more than two) partners do not see eye-to-eye. This is often the case when a business is approached by another business entity or person with a buyout offer that at least one business partner cannot refuse.
At Garcia & Gurney, ALC, we help businesses in the Pleasanton area mediate business and entity disputes and achieve an outcome that all parties can agree with. When it comes to selling a business, there is always going to be some resistance. However, because you often cannot sell just half or a portion of a business, we aim to mediate an outcome that makes sense, and that benefits all parties involved.
Did You Have a Buy-Sell Agreement?
Many times, the partners of a business will have the foresight to create a “buy-sell” agreement. A buy-sell agreement is a binding contract that specifically states when a co-owner is allowed to sell his or her interest, who can buy a share of an owner’s interest, and what price will be paid for that piece of interest. This agreement can also include provisions requiring the minority owner to sell his or her interest. These contracts come in handy in the event that one party wants to sell, but the other does not, or when partner suffers a personal financial burden, such as bankruptcy, divorce, or death. These contracts are the prenuptial agreements of business and can eliminate all the stress and hassle of a breakup down the road.
If you and your partner(s) had a buy-sell agreement, simply refer to that; it should guide you on what to do in the event that you want to sell but your partner does not, or vice versa. Hopefully, it also includes an alternative dispute resolution process, such as mediation or arbitration, which will govern how disputes are resolved among the parties.
How to Proceed without a Buy-Sell Agreement
If you do not have a buy-sell agreement with your business partner, and if he or she refuses to sell their share of the company, you have a couple of different options.
Sell Your Share to Your Partner or Purchase Your Partner’s Share
If your partner refuses to sell his or her share to the third party, you can offer to sell them your share of the business and step away from it altogether or you can purchase your Partner’s share. With a buyout offer on the table, you can use the proffered number as a starting point for negotiations for what the shares are worth. If your partner disagrees with the number, you may require the assistance of a business appraiser and/or the services of a professional mediator, both of which can help you come up with a fair and reasonable number.
Dissolve the Partnership
If your business partner refuses to buyout your share of the business or sell his or her share, you have the option to dissolve the partnership. However, in California, you must own at least 50% of the company (or at least half of the partners in a multiple partnership must be willing to sell) to effectively dissolve a business (Corporations Code, Section 16801-16807). When a business is dissolved, the corporation ceases to exist, and all of its assets are sold and split amongst the shareholders accordingly.
Consult with a Pleasanton Commercial Litigation Attorney
At Garcia & Gurney, ALC, our Pleasanton commercial litigation lawyers aim to resolve business disputes in as swift and cost effective way as possible. If you and your business partner no longer see eye-to-eye on business dealings, and if you want to sell but your partner does not, consult with our Pleasanton corporate attorneys regarding your options. If possible, it is best to mediate the dispute before it becomes a full-blown legal matter. Even if you and your partner are getting along but you do not have a buy-sell agreement, our Pleasanton corporate attorneys would be happy to work with you to put on in place to prevent any future disputes. Contact us by phone at 925-468-0400 or online to schedule a consultation today.