Can a Business Partner Buy Me Out?
If you are retiring, looking to start a new chapter in your career, or are having difficulty enforcing a buy-out provision in your partnership agreement, you should consider consulting with a business attorney.
If you are in a business partnership, or considering joining one, it is important to understand how and when you can exit the business, as well as circumstances in which you may be removed from a partnership. In some cases, a business may sell to a third-party buyer. In other cases, one partner or multiple partners may be able to buy out another partner.
Whether your goal is to simply understand your rights as a partner, or you wish to successfully exit from your current business, it is important to fully understand your legal rights and obligations before moving forward.
Consider the Partnership’s Written Agreement
If a partner wants to buy you out of the business, or you wish to sell your share of the business, the first thing to consider is whether the partnership agreement allows you to sell your ownership in the business.
The partnership agreement is essentially a contract between you and other partners of your business. It lays out all of your rights, obligations, and ways in which partnership disputes may be resolved. When forming a partnership, you need to have an operating agreement that sets out operational details like:
- The powers and duties of each partner
- Provisions for managing the replacement of partners
- Dispute resolution
- Transfer of ownership agreements
- Profit and loss distribution
In a well drafted partnership agreement, the transfer of ownership or buy-out provisions should be straightforward. If it is not, then an attorney may be required to help find an agreeable resolution to these issues.
There are different types of buy-out procedures though some state laws may not allow all of them. However, if they do, the partner buying you out has to meet a particular condition before issuing the buying request. If your business does not have a buy or sell out provision, the state laws can provide default rules. You can also check the state laws if your company has the buy-out or sell-out option.
When Can The Court Push Me Out Of A Partnership?
In some cases, a court can force business partnerships to dissolve. If the court dissolves your business, you may be forced out of business. A partner pushing for the partnership dissolution must own at least half of the shares in the company. Several partners can combine effort and collectively file for a partnership dissolution.
The petitioners must prove that the partnership’s management engaged in illegal activity. If the petitioner claims that the business acted illegally or oppressed one or some partners, they need to have at least 20% of the shares. In that case, the court may recommend a forced buy-out rather than dissolving the partnership.
If a partner can prove that the company violated its operating agreement, the court may dissolve the partnership, which may cause owners to lose legal obligations to the business.
Schedule a Consultation with an Ellis County Business Attorney
If you are retiring, looking to start a new chapter in your career, or are having difficulty enforcing a buy-out provision in your partnership agreement, you should consider consulting with a business attorney. Contact Foster Massengill, PLLC to learn more about how we can help resolve your partnership disputes.