I’ve represented many clients seeking a buyout of their shares or membership interest in a company. The circumstances often involved dissent or disagreement between the partners on how the business was being run, or a disagreement in the direction of the company. In some cases the parties were involved in a complex business-divorce litigation. Whatever the reasons they all involved the negotiation of a buyout from the company.
Negotiating a buyout from a company can be a complex process, and it is important to be well prepared to ensure that you get the best possible outcome. Here is a checklist of things to consider when negotiating a buyout:
- Determine the value of the company: Before you start negotiating a buyout, you need to determine the value of the company. You can do this by reviewing financial statements, conducting market research, and getting an appraisal. It’s very difficult to have an intelligent conversation about the value of a company if the parties don’t obtain an independent valuation of the company.
- Decide on the terms of the buyout: You will need to determine the terms of the buyout, including the purchase price, payment terms, and any contingencies. As part of those terms, as the exiting party, you want to ensure that once you’re done with the company, nothing from the past will come to haunt you. Therefore you should consider a thorough indemnification agreement where the company or the remaining partner(s) indemnifies you from any and all fully disclosed potential claims against you.
- Identify your priorities: Determine what your priorities are in the buyout negotiations, such as maintaining a position within the company (as a consultant) or receiving a certain amount of cash or other consideration.
- Prepare a negotiation strategy: Develop a negotiation strategy that takes into account your priorities, the other party’s priorities, and the value of the company. The goal of any negotiation is identifying the commonalities, the nuggets of opportunity where both parties can mutually benefit. Everything should be phrased or positioned in a way so that “the ask” benefits everyone involved.
- Review all documents carefully: Before signing any documents, make sure to review them carefully with a lawyer or financial advisor.
- Ensure that all necessary approvals are in place: Make sure that all necessary approvals, such as board approvals and regulatory approvals, are in place before finalizing the buyout. If the agreement will be contingent upon any third-party approvals, make sure you can get those before coming to the negotiating table.
- Be prepared for contingencies: Be prepared for contingencies such as delays, counteroffers, and unexpected issues that may arise during the negotiation process.
- Keep the lines of communication open: Throughout the negotiation process, it is important to keep the lines of communication open with the other party and to be flexible in your approach.
