Selling ownership in a partnership can be relatively straightforward from an accounting standpoint if the partners have a buyout agreement and the person buying the ownership share can afford to pay for it. However, like a sole proprietorship, a partnership is closely held and operated by the owners, so a transfer of equity that leads to new management can affect the business’s identity and future. If possible, work closely with your partner or partners to develop a plan that benefits the staying and exiting partners and the business as a whole.
Your path to an ownership sale will be simpler if you created a clear and thorough partnership buyout agreement when you started your company. The agreement should discuss what might lead to one of the partners wanting to sell her share and state the terms and timing that would apply. It should state whether any partner can sell to an outside party or whether a partnership interest can only be transferred to the partner or partners who remain. And it should provide a framework for valuing the partnership share that will be sold, such as basing the price on gross sales, net profit or long-term investment.
The sum you receive for your share of a partnership should compensate you for your investment of time and money. However, if your business is not profitable, your share may be worth less than your investment. If you do not have a buyout agreement or if your agreement leaves room for negotiating a buyout price, aim for an amount that will compensate you fairly without bankrupting your partner or partners. Asking for too much may jeopardize the long-term health of the endeavor you helped create.
A business partnership is like a marriage, and it wouldn’t make sense to simply transfer your stake in a marriage to a stranger. Your stake in your business should be sold to someone who has the money to pay for it, the skills to run your company and the potential for a good working relationship with the partner or partners who remain. If your buyout agreement doesn’t specify who is eligible to buy in, work with your partner to find a suitable replacement who meets your financial needs and your partner’s practical needs.
Although you may be able to complete the sale of ownership in your partnership through a transfer or funds and a signing of papers, the success of your partnership after you leave will depend in part on how thoroughly you transferred your knowledge of how to run the company — or at least the part you were responsible for. Consider the skills and tasks that have typically been your domain, and work with the remaining partner or partners to ensure that these areas will be covered and that the buyer is on track to learn the necessary skills.
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Source : Devra Gartenstein