Home » Buy out a departing owner

Buy out a departing owner

We will help you manage an owner's departure so it is fair to them and does not destabilise the business.

What happens when one of you wants out? In most private businesses the honest answer is that nobody knows, because it was never written down. The departing owner wants a price that reflects what they built. The remaining owners have to fund it out of a business that still has to trade on Monday. We act on owner exits for both sides, and the work is as much about keeping the business running as about the transfer.

Speak to a lawyer What is included

A number both sides can test

An agreed valuation method replaces two opinions with one process.

Payment the business survives

The buy-out is structured so funding it does not put the trading business at risk.

A clean break on the record

Guarantees released, directorships resigned and the register updated, so nothing is left hanging.

What is involved when an owner leaves a business?

An owner exit has three moving parts. The first is the mechanism. The shares or units can be bought by the remaining owners, bought back by the company, or sold to an outsider. What is permitted depends on the constitution, the shareholders agreement, or the trust deed.

The second is value. Someone has to decide what the departing interest is worth, and whether a minority holding is discounted for its lack of control. The third is funding, because the money usually comes out of the business or out of the remaining owners personally. Tax runs through all three. A buy-back, a share sale and a capital return are taxed differently, and the difference can be substantial.

Speak to a lawyer

What happens if there is no shareholders agreement when an owner wants to leave?

Nothing automatic. No owner is obliged to buy, and the departing owner cannot force a sale of their shares. Everything then has to be negotiated, which is why these exits take longer and cost more than the same exit under an agreement.

How is a departing owner's interest valued?

By whatever method the owners agreed, and by negotiation where they agreed none. Common approaches are a multiple of earnings, net asset value, or an independent valuation. A minority interest is often discounted, because it carries no control over how the business is run.

Can a departing owner be required to sell their shares?

Only where a document says so. Compulsory transfer provisions, sometimes called leaver clauses, can require a sale on events such as ceasing employment, bankruptcy or death. Without one, a departing owner can keep their shares and remain a shareholder indefinitely.

What are the tax consequences of an owner exit?

They depend on the route taken. A sale of shares to the other owners is usually a capital gains tax event for the seller. A company buy-back can be treated partly as a dividend. The small business concessions may apply, so the structure should be chosen alongside the tax advice.

An owner leaving should not be the event that breaks the business

Tell us who is leaving and what documents exist between the owners. We will tell you what the agreements permit, what the interest is likely to be worth, and how the buy-out can be funded.

Everything is negotiable when nothing was agreed in advance

An owner has given notice, and there is no agreed way to work out what their share is worth or who has to buy it. So the valuation becomes the dispute, and the dispute takes months.

Meanwhile the business still has to be run by people who are arguing with each other about money. Staff notice. Customers notice. The longer it takes, the less the thing being valued is worth.

We will review the shareholders agreement, constitution or trust deed and advise on what they require.
We will advise on the exit mechanism available, whether a transfer, a buy-back or a sale.
We will agree a valuation method and negotiate the price on your behalf.
We will structure the payment so the business can fund it.
We will prepare the buy-out documents, releases and transfers, and update the register.

One of the owners is leaving and nobody knows what happens next

One of you is retiring, moving on, or has fallen out with the rest. Perhaps there was illness, or a relationship breakdown, or simply a decision that it is time. What there is not is a document saying how the departing owner gets paid, or how much, or over what period. The business is sound, the relationship is under strain, and everybody is waiting for somebody else to propose a number.

What's included in your owner exit service

Speak to a lawyer

Shareholders agreement, constitution and trust deed review.
Exit mechanism advice.
Valuation methodology advice and negotiation support.
Buy-out agreement preparation and negotiation.
Payment structuring, including instalments and vendor finance.
Guarantee releases, director resignations and register updates.

What an unstructured exit does to a business

Exits without a mechanism follow a predictable path. The departing owner names a number based on revenue. The remaining owners name one based on what the business could afford without collapsing. Neither is unreasonable and neither can be tested, so the argument becomes personal.

From there it compounds. The departing owner is still a director and still on the register, so filings, guarantees and bank covenants sit unresolved. If they remain a guarantor of the lease or the overdraft, their own exposure continues. Decisions get deferred because nobody wants to commit the business while the ownership is unsettled. By the time a number is agreed, the trading performance that supported it has slipped.

How we get the owner out and the business running

We start with the documents, because the answer is often already there. A shareholders agreement, a constitution or a trust deed may set the mechanism, the valuation method and the timetable. Half the argument disappears once everybody reads the same clause.

Where there is nothing, we build the mechanism. An agreed valuation method, with an independent valuer as the tie-breaker. A price, and a payment structure the business can actually fund, whether that is a lump sum, instalments or a vendor loan. We deal with the things people forget. Personal guarantees released, directorships resigned, the register updated, and the departing owner’s authority over the company accounts closed off. We also confirm the tax treatment before the structure is fixed, because a buy-back and a sale are not taxed the same way.

How an owner exit gets done

The departing owner is paid, and the business keeps trading.

Find the mechanism

We read the shareholders agreement, constitution or trust deed and tell you what the existing documents already require.

Fix the value

We agree a valuation method, appoint a valuer where one is needed, and negotiate a price the business can fund.

Release and record

We document the buy-out, release personal guarantees, update the register, and close off the departing owner's authority.

Lawyers who get owners out of businesses without stopping the business

An owner leaving is rarely only a commercial event. People who started something together are ending that, and the negotiation carries whatever the relationship carried. The remaining owners feel the departing owner is taking value they will have to rebuild. The departing owner feels they are being paid less than they are owed. Both can be true at once.

We have 2 Accredited Specialists in Business Law. We also have 2 Family Business Association accredited advisors, which matters when the owners are also family. We have handled exits through companies, unit trusts and partnerships. We can run the negotiation as well as document the result, and keeping the business trading through it is part of the job.

Our great lawyer guarantee

Six principles we hold to, whatever you bring us and however long it takes.

Take the time

We listen carefully to understand what you want to achieve, then step you through the advice and the documents.

Share our knowledge

We pass on as much as we can, so you can make your own informed decisions.

Stick to our knitting

We only do what we are good at, so you never pay for our learning.

Work as one team

Someone is always available to answer your question or point you the right way.

Fair pricing

A fixed or capped quote for advice and documents, so you do not carry the price risk.

It is your show

We are in it for a front row seat to witness your success, not for our egos.

Get the exit agreed and the business moving

Tell us who is leaving, and send us whatever the owners signed when they started. We will tell you what those documents require, what the interest is worth, and how the buy-out can be paid for.

Speak to a lawyer 1300 654 590