Successful private company owners possess vision, passion, and purpose, but disagreements with minority partners are not uncommon. Different views on the company’s growth plans can create challenges in determining the best path forward. When serious disputes arise with minority business partners, majority owners must consider whether it’s time to seek separation. This post explores the factors that owners should take into account when answering that question.
Securing the reimbursement of the minority partner in the business is the first step to consider in the event of a serious dispute with a business partner. The majority owners must determine if they have a valid contractual right to exclude the dysfunctional business partner from the company or have other means of triggering the redemption of the minority partner’s company shares. Without a partner exit plan, the majority partner may not be able to secure an exit without mutual agreement.
Disagreements between business partners are common, and healthy disagreement among leaders is necessary, but it can become dysfunctional when minority owners or groups do not share the common purpose, raises their own importance, and conflict with the business plan. When this occurs, the majority owners must determine if the dispute with their partners is serious enough to justify action. If so, the majority owners must take decisive action to seek separation from the minority partners to preserve the company’s culture and vision.
The valuation process to determine the purchase price for minority interests requires the majority owner to pay close attention to the calculation of the amount paid for minority interests. The formula used to determine the purchase price will be set forth in the sales contract or governance document.
In conclusion, deciding whether to act to secure the exit of a business partner holding a minority stake in a business is a challenging decision. The majority owner must ensure that they have the right to redeem their partners in a written contract and that the nature of the dispute justifies taking decisive action. Finally, once a decision is made to redeem a minority shareholder, the majority owner must monitor the valuation process to ensure compliance with industry standards, including any applicable minority shareholder discounts.