Compare your financing options from over 60 lenders in 60 seconds.
$200 Best Match Guarantee
100% Australian Customer Support
30+ Australian Lenders To Choose From
No Credit Score Impact
Shopping around for the right loan can save you thousands of dollars in interest and fees.
In our business partner buyout finance guide:
1
3
5
2
4
6
1
2
3
4
5
6
Buying out a business partner can be a simple and inexpensive process if both partners are amicable, or a complex and expensive process if one partner disputes the buyout arrangement.
As much of their own finance may be tied up in their share of the business, owners will often seek business finance to cover the cost of the purchase. The options available and the process are generally quite similar to getting finance to buy a separate business. Let's take a look.
Before initiating the buyout process, it's important to understand how you will finance the purchase.
There are two common ways to fund a business partner buyout:
Plus a handful of alternative options we'll discuss below.
To apply for a secured business loan, you’ll need an asset to use as collateral. This could be a personal asset, such as your own home, or a business asset.
Secured business finance has a number of benefits, including lower interest rates than secured loans. However, there is a degree of risk as you could lose the asset if you cannot repay the loan.
You could also use an unsecured business loan to finance the buyout. You won’t need an asset to secure the loan and the funds can be used with fewer restrictions compared to secured finance.
Instead of an asset, an unsecured business loan is assessed and granted based on business revenue. In other words, you'll need to be able to demonstrate to the lender that the business can sustain sufficient cash flow to support the loan repayments.
Vendor finance: With vendor finance, you only pay part of the sale price up front and then pay the rest to your partner (plus interest) in instalments. Essentially your former business partner is financing part of the sale.
Alternatively, an agreement may be reached where the partner exiting the business stays on as an employee for an agreed period of time, with conditional lump-sum payments made periodically until the buyout of the shares is completed.
Invoice finance: If your business is owed money by customers, you may be able to borrow against the value of the outstanding invoices to finance part of the buyout. This is called invoice finance.
You can apply for finance to buyout a business partner from a bank, credit union, online lender or peer-to-peer lender. The exact eligibility criteria will depend on the finance option you choose and the specific provider.
The lender will assess your eligibility based on information about you and your business.
The lender will ask you to demonstrate that:
The lender will also ask for detailed information about your business. It will want to establish that:
Ready to compare business loans?
Get your best offers from multiple lenders. There's no obligation and checking your rates won't impact your credit score.
GET STARTEDGET STARTEDA business buyout refers to the process of buying or selling shares owned by a partner or shareholder of a business. Most shareholder or partner agreements will disclose the mechanics of how a buy out should work and also how the business is to be valued in the event of a buyout.
Business partner buyouts may happen for various reasons. Most commonly, buyouts occur when one business partner is retiring or looking to start a new business or in disputes.
These situations can be amicable or hostile, and understanding the process around a partner buyout can limit the financial strain and personal stress while the partnership is dissolved.
Having the buyout structure included in the shareholder agreement (SHA) will help keep emotion out of buyout, particularly if there are areas of dispute.
Once you have determined your eligibility for finance, the next step is to consult your partnership agreement. This should provide direction for the business and how it will operate, and also contain a buyout clause, which sets out the process for buying and selling shares within the business.
Including details about the buyout process in your partnership agreement will ensure that, regardless of how the partnership ends, both the departing and remaining partners will be protected and a fair price for shares can be mutually agreed upon.
An important part of buying out a business partner is valuing the business to determine a fair price for the sale. You can engage an independent valuation consultant to conduct an impartial valuation of the business based on its current and projected profits.
The valuation consultant will look at the existing debt and equity within the business, and consider several other factors which may affect the value, such as:
If a business relationship turns hostile, there are likely to be disputes around the buyout process, such as:
When a departing partner leaves a business relationship, they will often try to maximise the value of their shares, just as the remaining partner will try to devalue the shares to reduce the buyout price.
Once an agreement has been made on the purchase price for the partner buyout, you will need to complete the purchase and update your business documents. This includes:
You may also consider reviewing the partnership agreement - if there will be two or more remaining partners - and update the terms for any future buyout arrangements.
If you do not have an established partnership agreement, the state or territory legislation relative to your business location will determine how your partnership will be dissolved. You will also need to consult your local business authority to ensure the process meets all legal requirements for the state your business operates in.
Refer to the individual state Partnership Acts below, and contact your state's government business authority for more information.
State Partnership Acts | State Business Authorities |
---|---|
|
|
Shopping around for the right loan can save you thousands of dollars in interest and fees.
Business Loan guides and resources
Learn more about your business finance options and how to get the funding you need to grow your business.
Hear from people who found the right loan
You can finance a business partner buyout with both unsecured and secured business loan options. Unsecured finance will be assessed on the strength of your business, while secured finance will use a property as collateral.
Buyout valuations may be dictated in the partnership agreement, either specifying a value of the shares or the process for valuation. Generally, an independent valuation consultant will assess the value of the business and determine the sale price of shares.
A partnership agreement is a legal document created by co-partners of a business. It details how the business will operate and how decisions within the business will be made. A buyout clause is a section within a partnership agreement that stipulates the process for a departing shareholder and the sale of their shares.
A forced buyout clause is a condition within a partnership agreement that allows majority shareholders to force the sale of shares held by minority shareholders. The clause can also allow minority shareholders to exit the business and force majority shareholders to purchase their shares.
A forced buyout often occurs when minority shareholders are preventing majority shareholders from finalising business decisions. Forced buyouts may be included in the partnership agreement as a buy-sell arrangement, which allows:
As with other buyout arrangements, a forced buyout clause should stipulate the process for buying and selling shares, the valuation process for shares, and conditions for who is eligible to purchase shares from a minority shareholder.