If you are like most business owners, succession planning is never top of mind. It makes sense because trying to grow your company and keep a stable balance sheet requires most of your focus and energy. This is especially true in California where the high costs of labor and taxes drive up the budget. But, since you are on this page, I assume you are beginning to think about the life of your business after you retire. How can you ensure your legacy thrives after you step away from the business? Keep reading to discover why business succession planning is so important and what steps you can be taking now for the future.
There are several issues you need to consider when buying your partner out in California.
One of the biggest is the tax implications.
You need to agree on who will be responsible for those tax debts.
Your partner may be liable for taxes for part of the year.
The partner is entitled to the return of their contribution.
You’ll need to consider this when looking at the budget.
Pending Legal Issues
Your partner is still liable in litigation that relates to their time as a partner.
Leaving now does not absolve them from liability.
Sometimes the partner needs to be bought out but does not want to leave the business entirely.
In this situation, they will continue to work as an employee, consultant, or in some other capacity.
The Steps to Take
The first step in buying or selling a partnership stake in a business is to refer to the written partnership, operating, or shareholder agreement.
A properly formed organization will have something in writing.
You need to follow the instructions outlined in your written agreement since these are the controlling terms.
If you have an oral agreement, then you need to follow the terms you agreed upon.
Be careful here; people tend to disagree when it comes to memory.
Hire Professional Help
Before you take action, hire a business consultant, accountant, or financial advisor.
This is an outside third party who will come in and determine the health and value of the company.
Both you and your partner will need to agree on the valuation of the business. Upon agreeing to this, you now have a solid starting point to negotiate a buyout of the partner.
This is the time it becomes necessary to hire an experienced business lawyer. They will help you create your buyout agreement.
Memorialize Your Agreement
Once you and the other partner outline and agree to the terms of your buyout, you need to memorialize it.
This is not a DIY project — you need a qualified lawyer experienced in California business law.
If the Partner Refuses Buyout
If you find yourself in a situation where your buyout is involuntary, then hiring a lawyer is a must.
They will represent you as you go through the process of involuntary dissolution pursuant to the California Corporations Code.
Plan Your Partner Buyout
To have a smooth partner buyout, you need to hire the professionals.
Having a knowledgeable financial advisor and legal team will help ensure everyone is on the same page and gets treated fairly.
Contact our office today and let us help you plan your partner buyout.