My Business Partner Wants to Sell Their Shares

So, your business partner wants to sell their shares. What does that mean for the company, and you, moving forward?

Well, there’s no doubting that such a situation can incur a considerable amount of upheaval, but it can also be a great chance to pursue new opportunities. In fact, there are a multitude of options available to business owners in this position, but it’s fair to say that they also boil down to three routes: buy out the partner to take sole control/larger share, exit the company yourself, or bring a new partner in.

If you plan to buy out the partner

Unlike some other business sales, you find yourselves at somewhat of an advantage here. You already know that your business partner wants to sell their shares, so you are unlikely to have to pay over the odds to secure them for yourself.

However, if you hope to maintain a good relationship with them, you should be careful not to try to undercut them, as this could create a degree of contention. If you are aware of another interested party involved too, you could quickly see this opportunity lost as they decide to go elsewhere.

Once relations have broken down, it can be tricky to come to an agreement on anything, let alone all of the intricacies that can be present in a business buyout. Seeing eye to eye on price is usually the main area of contention, and warring parties can end up spending a fortune on legal fees to get past this.

Luckily, if both parties are keen for the matter to be resolved fairly, there are other solutions available, such as our own shareholder dispute resolution service. This creates an independent valuation and a binding agreement for all parties to comply with. It also structures any buyout in a way that benefits everybody, providing the best chance of getting paid properly for the seller, and ensuring that payments are affordable for the buyer.

Exit at the same time

There are occasions in which the departure of one director prompts the exit of all. Perhaps you lack the skills to go it alone, or maybe your heart isn’t in it now that it’s a solo venture. Either way, there are two options open to you: sell or close.

Selling the business is fairly self-explanatory. Assuming that you can find a buyer, they will buy all the shares in the company and assume control of the business. This is the cleanest sales route available, although the buyer may not decide to buy the shares. Instead, they may opt to simply buy the assets instead. This could include anything from equipment to client lists but leaves the corporate shell behind in order for them to trade as a separate entity.

If you can’t find a buyer or a sale isn’t feasible however, you will instead need to dissolve the company. There are a handful of ways to do this, but broadly speaking the best option will depend on the financial status of the business.

• If you have debts – you can liquidate via a creditors’ voluntary liquidation which will auction off the company’s assets in an attempt to pay off its debts.
• If you have funds or assets under the value of £25,000 – you may be able to dissolve the company yourself with a DS01 form. This usually works out cheaper than liquidation but can incur higher tax bills depending on the company’s retained profits.
• If you have funds or assets over the value of £25,000 – a formal members’ voluntary liquidation is often the most tax-efficient means of distributing assets among shareholders.

Find a new partner

Replacing your business partner will either require an external investor or somebody from within the company.

If the new director is found from outside the company, the process is simple: either they buy the shares directly from the departing director, or the departing director sells their shares back to the company to then redistribute as they see fit.

Finding a new partner from within the company is often the easiest way to find somebody interested. This gives you scope to offer a partnership to a valued employee who already knows the business inside out. If they don’t have the money upfront to buy the appropriate shares, you may be able to structure a deal in which they buy the shares in a piecemeal fashion.

Alternatively, you may decide to keep the shares for yourself and promote the employee to managing director with a competitive salary and bonus scheme. This would potentially take care of a lot of the work the old director left behind while increasing your own share of the business.

Need help with a shareholder dispute?

Forbes Burton provides shareholder dispute resolution services that offer independent valuations and binding agreements that all parties are happy with.

Speak to one of our advisors today on 0800 060 8446 or email advice@forbesburton.com