Selling a Business With a Partner: When Co-Owners Sell Together or Apart

Plenty of small businesses are owned by two or more people: friends, siblings, spouses or former co-workers. Selling one is the same process as any other sale, with one extra step at the start. The owners need to agree, in writing, on what they're selling, for how much and how the money is shared.

Start with your agreement

Before you talk to any buyer, find your shareholders' agreement (for a corporation) or partnership agreement. It often answers the hardest questions in advance. Look for:

• Consent rules. Whether all owners, or a majority, must agree before the business or any shares are sold.
• Right of first refusal. Whether your partner can match any outside offer for your share before you accept it.
• Buy-sell or shotgun clauses. A set process where one owner names a price and the other must either buy or sell at that price.
• Tag-along and drag-along rights. Whether a minority owner can join a sale, or be required to join one.
• Valuation method. Some agreements say how a share is valued, for example by a formula or an independent valuator.

If there's no written agreement, don't panic. It just means you'll agree these points now, ideally with a lawyer's help.

Agree the big decisions together

Partners who disagree in front of a buyer lose leverage and trust. Sit down first and agree:

1. Whether to sell at all, and whether it's the whole business or one partner's share.
2. The lowest price you'd both accept. A shared view of what the business is worth avoids arguments later.
3. The kind of sale. An asset sale or a share sale can affect each partner's taxes differently.
4. Who talks to buyers. One point of contact keeps the process calm and consistent.
5. Who stays on. Buyers often want an owner to help through the handover. Agree who that will be and whether they're paid for it.

Put what you agree in a short note or email that both of you confirm. It's not a contract, but it stops memories drifting apart over a long sale.

When one partner buys the other out

Often the best buyer is already inside the business. A buyout can be quicker and more private than an outside sale. A few points to settle:

• Price. Use the method in your agreement, or get an independent valuation you both accept.
• Payment. The buying partner may pay over time, similar to vendor take-back financing. Set out the interest, the schedule and what happens if a payment is missed.
• Personal guarantees. If the leaving partner guaranteed a loan or lease, ask the lender or landlord to release them. Our guide to selling a business that has debt explains how.
• Non-compete. The staying partner may ask the leaving one not to compete for a while. See our non-compete guide.

Splitting the money

The sale price isn't what each owner takes home. Before you accept an offer, agree the order things are paid:

1. Business debts, loans and liens that must be cleared at closing.
2. Selling costs, such as lawyers, accountants and any broker.
3. Shareholder loans or money a partner lent the business, if they're repaid first.
4. What's left, shared by ownership percentage or the split your agreement sets.

Ask your accountant to model the numbers for each partner. One partner may hold shares through a holding company, or be able to use the lifetime capital gains exemption, and that changes what each person keeps. Our guide to taxes when selling a small business covers the basics.

Spouses and family partners

If you co-own the business with a spouse or family member, the same steps apply, but feelings run higher. Be clear about who is selling what, especially if a separation or estate plan is part of the picture. Buyers may ask a spouse to sign even if they aren't a listed owner. Our guide to selling a business to family may help if a relative is the buyer.

If you can't agree

Disagreements between owners are common and usually solvable. Some calm options:

• Have an independent valuation done, so you're debating facts rather than feelings.
• Try a mediator who works with business owners. It costs far less than a court case.
• Follow the buy-sell process in your agreement, if there is one.
• Take a break and revisit it. A sale rushed through a dispute rarely goes well.

What buyers will check

During due diligence, a buyer's lawyer will confirm who owns what. Have these ready:

• The shareholders' or partnership agreement and any amendments.
• The share register, or the partnership registration, showing each owner's percentage.
• Written consent from every owner to the sale, signed by each of them.
• Any shareholder loan balances and how they'll be settled at closing.

Our list of documents needed to sell a business covers the rest.

A practical checklist

1. Find and read your shareholders' or partnership agreement.
2. Agree with your partner whether to sell, and what: the whole business or one share.
3. Agree a minimum price, the kind of sale and who speaks to buyers.
4. Consider whether one partner buying the other out makes more sense.
5. Agree in writing how the proceeds will be split after debts and costs.
6. Have each partner get their own tax advice.
7. Gather ownership records and signed consents for due diligence.
8. Have every owner sign the sale documents at closing.

A note on advice

This guide is general information, not legal, tax or accounting advice. Ownership agreements and provincial rules vary, and so does each partner's tax position. Please have your own lawyer and accountant review your agreement and the sale documents before you sign.