Can a Business Partner Force You to Sell?

Reasons for buying out a business partner

There are many reasons why one partner may want the other to sell. These mostly revolve around a disagreement between both parties, or wanting to cut ties because of the other director’s actions, associations, or reputation. 

Other examples of common reasons why a business partner may wish to buy out the other include: 

• Diverging goals 
• New investment 
• Restructuring the business 
• Seize new growth opportunities 
• Personal reasons.

Can you force a business partner to sell?

There is no mechanism which allows one business partner to force the other to sell their shares. Instead, most companies will have partnership agreements or Articles of Association and Memorandum (if they are incorporated) which set out how disputes should be resolved. If a partnership is to be dissolved, it must be done so with the consent of both parties. 

Some businesses are founded on informal agreements or ‘handshake deals’, particularly when the directors are friends or family members. While this sort of arrangement may work if things are amicable, it can cause a lot of difficulties should circumstances go awry. We would therefore recommend all businesses have a clear partnership agreement in place to prevent any upset further down the line. 

In cases where a formal partnership agreement does not exist, there are several potential resolutions available:

• Negotiate: Enter into discussions with your business partner to try and resolve the situation amicably. This could involve a change in business practices or a shake-up of duties.
• Seek legal advice: If negotiations are not working or the situation has deteriorated too much, your next step should be to consult a specialist commercial litigation solicitor who can guide you through your options. 
• Sell your shares: Although you may have initially been reluctant to sell your part of the business, the aftermath of negotiations could lead you to change your mind. If this happens, you could decide to cut ties with your partner and move on. 

Can a business partner sell without my consent? 

The question of whether a business partner can sell without consent depends entirely on whether a partnership agreement is in place. If one exists, it should exclude a clause which prevents one party from taking unilateral action in disposing of the company. If not, your partner could indeed be able to sell without receiving your consent beforehand.

It is always recommended to have a written and detailed partnership agreement which outlines exactly how the firm should be organised and operated. If one does not exist, you should consider speaking to a specialist commercial solicitor who can help you draw up a watertight contract. 

Partnership and shareholder agreements should also be regularly reviewed to ensure they remain fit for purpose. 

Breach of partnership cases 

Although a business partner can't force you to sell, there are some cases in which the partnership could be dissolved against your wishes. These mainly involve repeated breaches of the partnership agreement. 

A common reason for wanting to dissolve a partnership involves breaches of fiduciary duties, where one party fails to act in the best interest of the business. Should this occur, and the company suffers as a result, the affected partner could push for a dissolution. 

There may be clauses within a partnership agreement which outline the circumstances in which the relationship can be dissolved. The Parliament Act also allows for situations where a party wilfully or persistently breaches the partnership agreement. 

If you believe your business partner has breached your agreement, or you are being accused of doing so yourself, it is important to speak to an experienced corporate governance solicitor who will analyse your circumstances and put together a comprehensive, tailor-made solution to achieve your desired results. 

Selling my share of the business to my partner

If you do end up deciding to sell your share of the business to your partner, you would first of all need to determine how much it is worth — something a business valuation specialist could assist with. Once this has been done, the next step is to consult a mergers and acquisitions solicitor to guide you through the process and ensure your objectives are met.  

Once legal experts have been instructed, both parties will need to negotiate the actual terms of the sale, while the buyer has to come up with the required funds — either by themselves or with the aid of commercial finance options. Only when everyone is satisfied with the agreement, can the deal be completed.