People starting businesses with partners usually negotiate in-depth contracts. Their partnership agreement outlines contributions and compensation. It may also include restrictive covenants that protect the business from future competition and even a buy-sell agreement.
A buy-sell agreement officially outlines when and how one partner can acquire the other’s interest in the company. People may invoke buy-sell agreements after uncovering financial misconduct because they cannot continue working with a partner they don’t trust, for example.
What options does one partner have if the other immediately refuses an attempt to invoke their buy-sell agreement?
Litigation may be necessary
A buy-sell agreement is not just a friendly suggestion that one partner should cooperate in a buyout scenario. It is a binding agreement that both partners have an obligation to uphold. If the circumstances align with the requirements in the buy-sell agreement and one partner has the capital necessary to buy out the other, it may not be legally realistic to refuse to cooperate.
While one partner may insist they don’t want to sell, the other could take the matter to court. Provided that a judge agrees that the buy-sell agreement is valid and that the circumstances warrant invoking the document, a judge can facilitate an involuntary buyout based on the terms established in the buy-sell agreement.
When one partner has ceased pulling their weight, refuses to take steps that could better the business or has engaged in misconduct, buying out their interest may be the best path forward. Working with a lawyer can help frustrated business partners determine if they can move forward with a buyout without voluntary cooperation.