| Read Time: 4 minutes | Business Law
how to buy out a business partner

Few things last forever, and that adage rings true in business. Anyone who wants to end a business relationship by buying out their business partner in Texas will likely have to follow multiple steps to protect themselves from legal liability.

The article below gives a general outline of how to buy out a business partner in Texas. However, anyone seeking steps that apply to their situation should contact Massingill about their options. Our experienced business attorneys are highly rated and well-versed in the legal needs of the Texas business community.

Consult the Partnership Agreement

Before one partner engages in a major transaction with another partner, they should thoroughly read the existing partnership agreement. A partnership agreement may outline the procedures and conditions for a partner buyout. The terms in a partnership agreement supersede Texas law unless they are unlawfully restrictive or illegally diminish certain partner rights or obligations. 

When reviewing the agreement, a partner should keep an eye out for clauses related to:

  • Buyouts, 
  • Transfers of partnership interests,
  • Valuations, 
  • Voting requirements for partner consent, and 
  • The rights and obligations of each partner.

Parties should consider consulting a lawyer to ensure compliance with their partnership agreement. A good attorney can also help the parties understand all the legal implications of their buyout.

Have the Partnership Interest Appraised

The purchasing party should know the value of a partnership interest before they begin the buyout process. The first step is to examine the rules in the partnership agreement and follow any procedures the terms require. 

A purchaser may need to take the following actions:

  • Agree on appraisal methods. If the partnership agreement doesn’t outline how to value partnership interests, parties to the transaction should agree on the valuation method (e.g., income approach, market approach, or asset-based approach). The parties may want to do this with the guidance of an appraiser.
  • Hire an appraiser. Engage a professional business appraiser to determine the value of the selling partner’s share.
  • Review the appraisal report. Once the appraisal is complete, review the report and ensure it accurately reflects the value of the partnership interest.

After the parties have reviewed the rules in their partnership agreement and examined the appraisal report, they may want to write their own report regarding the transaction. The parties’ report can help them prepare to speak to any remaining partners. 

Get the Consent of the Other Partners

Under Texas law, a majority of the partnership interests must consent to the expulsion of a partner who transfers their partnership interest. However, if the partnership agreement says so, purchasers and sellers of partnership interests may need to obtain consent from more than a simple majority of interests when conducting a buyout. Also, if the buyout will require the partnership to amend its partnership agreement, all partners must agree to the changes.

Parties to a business partner buyout may need to do the following:

  • Hold a partner meeting with all partners to discuss the buyout plan and present the appraisal report;
  • Discuss any rights or obligations that will change after the buyout (e.g., what will happen with the selling partner’s liabilities, what type of voting rights each partner will have moving forward);
  • Obtain written consent to ensure that the necessary number of voting interests consent to the buyout; and
  • Record the agreement in the meeting minutes to document the partners’s consent.

Depending on the provisions in the partnership agreement, parties to a transaction need to discuss valuation methods with the remaining partners before getting an appraisal. A partnership meeting might have to occur before hiring an appraiser. 

Draft a Business Partner Buyout Agreement

Writing and signing a detailed agreement is a best practice (and often required) when handling a business deal as significant as buying out a partner. After hammering out the buyout details, the parties should put the transaction into a written agreement. The agreement should be signed by all necessary parties (which might include all remaining partners). Provisions in the agreement might include:

  • The purchase price,
  • The method of payment,
  • Whether the selling partner will retain liability for matters in existence before their withdrawal, and
  • What effect the transfer will have on the purchasing party’s rights.

The purchasing party should hire a lawyer to draft the buyout agreement to ensure the deal covers all legal aspects.

Finalize the Sale

Once all parties are satisfied with the buyout deal, they should sign the agreement. The parties should then complete the financial transaction as per the agreed terms and update their business records to reflect the change in ownership. 

Updating records might include making changes to business assets such as:

  • Bank accounts,
  • Property leases,
  • Financing agreements, and 
  • Other business arrangements.

Making these changes can be a lengthy process. Before making things final, the parties should discuss their post-buyout timeline. 

Notify the Secretary of State

The parties may need to notify the Texas Secretary of State about the buyout. Notification depends on the type of partnership the transacting parties have. For instance, a general partner in a limited partnership must file an amendment to the business’s certificate of formation when a general partner withdraws. An experienced business attorney from Massingill can identify all paperwork that business partners must file with the Secretary of State when they buy out a partner. 

Get Started with the Best Legal Counsel

Massingill can provide you with the best Texas business lawyer to handle your partnership buyout. We are a five-star-rated legal team that collaborates with each client to ensure they get the best results for their unique needs. We also have decades of combined experience that we bring to the table in every case. You can contact us today by visiting our website or calling us

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Joshua Massingill

Joshua Massingill is an attorney practicing in Austin, Texas. He serves on the Texas State Bar’s Law Practice Management Committee, the Leander Educational Excellence Foundation (LEEF) Board of Directors, and the Success-Werx Board of Advisors. He mentors young entrepreneurs in Leander ISD’s INCubatorEDU program and is active in his church.