by Steve20

Created on: November 19, 2009

How to Buy Out Your Business Partner

What if you have a partner and the person is lying around the office, playing games, and taking personal telephone calls all day? You are doing all the work but sharing the profits with this bozo.

The time to plan an exit strategy for an errant partner is at the very beginning of the business relationship-when everyone's friends with everyone else and everyone's feeling the love and willing to do whatever it takes (or so they say) to make the business a success.

Here are some strategies for getting rid of a partner that has gone bad.

Sign Employment or Independent Contractor Agreement

In addition to your operating agreement, each partner should sign an Employment Agreement or Independent Contractor Agreement pledging to devote substantially all the time and expertise to the business. The agreement should spell out the draw and other compensation the partner will receive and should specify that the agreement can be terminated under the circumstances set forth in the partnership agreement. The operating agreement should provide that if a partner breaches his Employment Agreement or Independent Contractor Agreement with the company, the other partners may, by majority vote, terminate the Employment Agreement or Independent Contractor Agreement. In which case, the defaulting partner will be compelled to sell his ownership equity back to the company for book value (essentially the value he would receive if the company were dissolved and liquidated and a much lower amount than the fair market value of his interest in the company.

Create a Buy-Sell Agreement

All of the partners should sign a Buy-Sell Agreement providing that any partner who withdraws from activate participation in the management and affairs of the company or to the other partners for the price set out in the agreement. This agreement should, at the very least, contain the following:

-A death and disability clause providing for the repurchase of the interest of a deceased or disabled business partner.

-A voluntary transfer clause providing that before your business partner sells out to someone else either you or the company has a right to first refusal to buy the withdrawing partner's interest on the same terms and conditions.

-A retirement clause providing for the repurchase of the interest of a retiring business partner-be sure to specify the minimum age at which retirement can take place.

-A termination of employment clause providing that if a partner

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