Partnership buyouts, when voluntary, require both buyout documentation and either a partnership amendment or dissolution. Involuntary (forced) buyouts require more advanced and detailed review and preparation. The process generally is as follows:
- Review Existing Partnership Agreement. If there is an existing partnership agreement in place, that agreement needs to be reviewed for whatever rules have been established for the proposed buyout. For both voluntary and involuntary buyouts, we hope that the existing agreement provides enough detail on notice, pricing, method of payment, timing, and post-sale requirements to avoid possible disagreements.
- Written Buyout Notice. Notice of the buyout needs to be provided to start the clock on the buyout process. With involuntary buyouts, the notice terms must be followed exactly to avoid further delays. Some negotiation may be needed to fill in the “blanks” left in the partnership agreement.
- Buyout Price. If the agreement does not set the price or precise calculation amount, and no agreement on the price is made, an appraisal will be required. Again, we hope that the agreement provides guidelines and timing on setting the price.
- Buyout Documents. While the buyout price is being decided, we can move onto the buyout documents. Buyouts under an agreement with detailed succession planning terms can require very limited documentation. Without thorough succession planning terms, the buyout documents may have to be greatly expanded to include very detailed explanations on perhaps 100 different subjects relevant to practice buyouts.
- Partnership Dissolution or Amendment. If the buyout ends the partnership, a Partnership Dissolution Agreement will be necessary to identify who oversees the dissolution and final tax returns, how and when undiscovered assets are divided, and how practice liabilities are apportioned and paid. If the partnership continues with at least two partners, a partnership amendment may be all that is required.
Post-notice voluntary buyouts with partnership dissolution are available at a flat rate or hourly; the written notice stage is billed hourly. Voluntary buyouts with detailed succession planning terms and multiple remaining partners usually require only limited documentation at hourly rates. Joint partnership representation for voluntary buyouts may be available at flat rates only with attorney’s consent and clients’ conflict of interest disclosures and consent – see FAQ: Joint Legal Representation for further details. Involuntary buyouts can become very contentious and are available only at hourly rates. Buyer or Seller, contact me for a free 30-minute consultation to start planning on your partnership buyout!