When a Business Partner Wants to Sell and the Others Don’t
One of your partners is ready to sell. The others are not. When a business partner wants to sell, what happens next depends first on the document that was meant to settle it in advance: the buy-sell agreement. If your franchise has none, or the price written into it no longer fits the business, the sale stalls there, and your franchisor may still have a say in who ends up owning the share. This article covers what the agreement does, why the price inside it goes stale, and what to ask before anyone names a number.
What does a buy-sell agreement do when one partner wants out?
It settles in advance what happens to an owner's share when that owner leaves, and how the share is priced and paid for. It names the triggers, such as death, disability, bankruptcy, retirement or an owner deciding it is time to go, per Investopedia's overview of the mechanism.
Funding is often life insurance. Each partner, or the business itself, carries policies on the owners, so the money is there when a trigger happens and the remaining owners do not have to find cash on short notice, per the same source. Two forms are common. In a cross-purchase agreement, the remaining owners buy the departing partner's share directly. In an entity-purchase, or redemption, agreement, the business buys the share back, per the same source. The form changes who pays.
Terms vary by document and by state, and all of this describes what an agreement can do, not what yours says. An attorney reading your actual document is the only reliable way to know what it requires.
Why does a buy-sell agreement fail when a partner wants out?
Because the price inside it can describe a business that no longer exists. An agreement drafted years ago may carry a flat number or a formula that made sense then, and nobody has opened it since.
Redwood Valuation's buy-sell agreement valuation guide says fixed prices go stale and are rarely updated, fixed EBITDA multiples ignore capital structure, growth and risk, and formula pricing can diverge from market conditions by the time a trigger event happens. Then a partner wants out, and the number everyone is meant to work from no longer describes the business in front of them.
How should a departing partner's share be valued?
By a current appraisal from a qualified valuation professional, according to Redwood Valuation's guide. It recommends that appraisal at the time a partner wants out, or a periodic update of the valuation so the number stays tied to the business it describes.
A departing partner's share is also not automatically a straight fraction of the whole. A smaller stake that is harder to sell may be worth less than its pro-rata share, and that is a question for the appraisal. Anyone who gives you a standard percentage for it without seeing your numbers is guessing.
For how a buyer builds the number an appraisal starts from, see our article on how franchise valuation works.
Does my franchisor get a say when a partner sells?
It may. If the business you co-own is a franchise, the transfer terms in your franchise agreement can apply on top of your buy-sell agreement. Your franchisor could still have a say in who owns the share after you and your partners agree on a price.
Item 17 of the Franchise Disclosure Document has a row defining a transfer by the franchisee, a row for franchisor approval of a transfer and a row for the conditions of approval: rows (k), (l) and (m) (16 CFR 436.5(q)). Whether a change among co-owners counts as a transfer depends on how your agreement defines the word, so read your own definition.
Ask your franchisor in writing what it requires when ownership changes among existing owners, and have your franchise attorney read the answer against both agreements. Our article on what a franchisor reviews before it approves covers the approval process for a sale. If you and your partners hold more than one location, ask the same question location by location and for the portfolio.
Can the partners sell the whole franchise instead of buying one out?
Yes, if your agreements allow it. Buying one partner out is one way to settle it. Selling the whole franchise to an outside buyer is another.
Whether your agreement lets one partner start or block a sale of the whole business is a question about your document, for your attorney. If the owners choose to sell, that is the sale we help with: a free Opinion of Value to set the starting number, then buyer screening, due diligence and offer negotiation, franchisor approval, paperwork and closing steps. Confidentiality is available throughout.
What should I do before this becomes urgent?
Read your buy-sell agreement's pricing method and note when it was last updated. If you have no agreement, ask your attorney about writing one while every owner still agrees to talk. Then get a current number, so a conversation about price starts from the business as it is.
A free Opinion of Value gives you that number and commits you to nothing. It is a personal valuation page with a custom video walkthrough recorded by a senior advisor, free and with no card on file. Request your free Opinion of Value when you want a current view of what the franchise is worth. If you are the partner who is ready, our sell a franchise page shows how we work with owners.
Frequently asked questions
Then nothing written sets the price or the process, so the owners have to agree both now or settle them another way. State law and your entity's own documents may speak to it, so ask your attorney.
That depends on your buy-sell agreement, your entity's documents and your franchise agreement, and any of the three may restrict it. Franchisor approval would apply if the sale counts as a transfer under your franchise agreement. Your attorney can read the three together.
No. The Opinion of Value is free, and requesting one does not commit any owner to a sale or a buyout. It gives the owners a shared starting point before anyone names a price.