How do you handle the situation when a co-owner wants to sell their interest to a third party?

The answer to this questions starts with the primary foundational document, for example an Operating Agreement for an LLC or Shareholder Agreement for a corporation. These documents often contain extremely detailed parameters regarding transferring equity by an owner. If you are a member of an LLC/shareholder of a corporation and your entity lacks such a foundational document, you need one ASAP. If your document lacks transfer provisions, the odds are somebody downloaded something skimpy online. Good luck!

Without an agreement in place that restricts the sale of a co/owners interest, owners have the right to sell their interest to third parties without the approval of their co-owner. I suggest that you approach your co-owner with your own offer or tell him/her that you will match any offers he/she receives.

First and foremost, it's essential to refer to the partnership agreement, if one exists, to understand any stipulations regarding the sale of interests and procedures for handling such transactions. If the partnership agreement includes a right of first refusal clause, co-owners must be informed of the potential sale, affording them the opportunity to purchase the selling co-owner's interest before it's offered to external parties. Legal documentation, such as a purchase agreement/buy-sell agreement, must be meticulously prepared to formalize the transaction's terms and facilitate the transfer of ownership. Throughout the process, obtaining requisite approvals from all involved parties and relevant regulatory authorities is imperative.

I would offer to buy them out or bring them a buyer of your selection. Time could be limited so buying them out maybe the only way to go. You could later sell that portion to another buyer once you gain control.

Proactively negotiate buy-sell terms that include a "key person" insurance policy to ensure liquidity for the purchase without straining cash flow. Additionally, consider incorporating a "Texas Shootout" clause to resolve disputes by allowing one co-owner to set a price, and the other to choose whether to buy or sell at that price, ensuring fairness and clarity.

Engage in a strategic discussion that involves conducting a thorough valuation of the business to establish a fair market price. Introduce earn-out provisions, which can align the seller's payout with future performance metrics, reducing immediate financial strain. Additionally, consider proposing a phased buyout to ease the transition and ensure continuity in business operations.

One may, if ready to buy the proportion of ownership held by the partner(s) and then sell it off to other entities according to his terms and conditions and as per further planning of the business or property concerned!

Hopefully, by the time it comes to drafting the papers for the transaction, the "hard stuff" is done - key terms are negotiated, everyone's on the same page, and the drafting process can go smoothly. Depending on the type of entity we're dealing with, you'll typically have some sort of share transfer (corporation) or membership interest (LLC) agreement. Think about things like representations and warranties around what the selling owner knows about the business. Are there any pending or threatened claims or disputes? Any scenarios that would create an unusual risk or liability for the company? Get indemnifications to make sure that you don't let your partner leave you holding the burning paper bag.

Establishing a strong relationship with a new co-owner is crucial for smooth transitions eg, a manufacturing company successfully integrated a new partner by fostering open communication and shared goals. Communicating with stakeholders like employees and customers builds trust and maintains stability. Reviewing business strategies and operations post-sale is essential to adapt to new dynamics. Updating the buy-sell agreement post-sale prevents future conflicts eg, A consulting firm avoided disputes by revising their agreement after co-owner's exit. Planning for the future ensures long-term success despite ownership changes eg, A e-commerce startup thrived after a co-owner sold their stake by proactively adjusting strategies and goals.

A right of first refusal (ROFR) is essential in co-ownership arrangements for several key reasons. Primarily, it allows existing co-owners to maintain control over who enters the business partnership, preserving the integrity and vision of the company. ROFR prevents disruptions by keeping stakes away from potentially misaligned third parties and ensures transitions in ownership occur at fair market value. This clause is particularly vital in closely-held or family businesses, where long-term continuity and relationships are key. Clear ROFR terms, including valuation methods and timelines, are essential for smooth ownership transitions and minimizing conflicts.

In a well designed partnership there would be prior agreements that address this scenario. And if the partnership were healthy the partners would be working together to allow equity to transfer with the best outcome for all. This would most likely be a very nuanced scenario with lots of discovery needed. First find out why, what outcomes are important to the exiting partner. The two major factors are exit and income, likely with very different drivers. Then what's their time line, level of urgency. This may be externally driven by the outside party. Who courted who? Partnerships are hard to keep on track, and this scenario is likely best addressed with facilitation by a professional with a depth in business partnerships.