Buying a company with 2 partners, 1 exiting

searcher profile

November 11, 2024

by a searcher from Columbia University - Columbia Business School in Scarsdale, NY 10583, USA

Company has two founders at 50/50 ownership. Partner B wants to exit, Partner A wants to stay onboard and maintain current role.

Has anyone dealt w a situation like this? Would love to hear the good, the badf and the ugly.

Thanks!

Scott


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Reply by a professional
from University of Michigan in Detroit, MI, USA
Hi ^redacted‌, how will you fund the acquisition? If you're looking to rely on a business loan, Partner A may not want to saddle the company with that debt. You'll have to make him okay with the risk. And make sure that you end up paying for it (he likely won't want to pay for the added expense). Your lender may also require Partner A to sign a personal guarantee (this is definitely the case if relying on an SBA loan).

Funding issues aside, the biggest questions will revolve around management and ownership. If you each own 50/50, who gets to make big decisions? What happens if you disagree on the right course of action. Will you have a right to buy out Partner A later down the line? Will Partner A be able to force you to buy him out?

Just to be clear, this can be done. I've seen many partnerships work out because the parties have thought through these questions in detail prior to becoming partners, and have documented their agreement so there can be no doubt. Start speaking with Partner A as soon as possible, and be as honest as possible. Hopefully, Partner A will do the same.

Let me know if I can be of any help. My law firm, Groundswell Advisors, LLP, routinely works with buyers in this position. Always happy to discuss. Reach out at redacted
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Reply by a professional
from The Johns Hopkins University in Basking Ridge, NJ 07920, USA
Scott - I have repped clients/companies in that scenario - both prior to and post-acquisition. As with most things, the key is setting expectations. You should also take care to try and include a low-friction mechanism for Partner A exit. This may initially sound like a good idea for Partner A but its just as likely that the partner gets quickly disenchanted with the new partner/direction of the company and wants out relatively quickly. There is no perfect solution, but you want to try and avoid a dispute while still dealing with normal post-acquisition issues. Best of luck!
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