For those of you who have been through the process of buying out a shareholder, you may have found, initially, the thought of actually sitting down with the shareholder in question to be extremely stressful. However, most of you who have been through this process and who have had the “tough” conversation” end up saying that the conversation was the easy part. The hard part, in my opinion, is being well-prepared prior to sitting down. Here are some areas to consider, prior to buying out a shareholder from your company:

1. Have you taken the time to address the deficiencies of the shareholder in question and deviations on how you see the world versus how the shareholder sees things? The benefit to doing this well beforehand allows for ample time for you and the shareholder to get on the same page. Important note: Be very cautious on doing this if the shareholder you are approaching owns a majority (50%) or close to a majority stake in your business. If not handled with tact, you could be the one on the outside looking in!

2. Get a good corporate/personal lawyer who is experienced in dealing with shareholder issues. Ideally you would have done this for yourself on day one of your business but if not, try to find a lawyer who is your advocate and not your current business’s lawyer who may have several interests they are advocating for (this would include the company which may or may not be aligned with your interests).

3. Do you have a Shareholders’ Agreement? If so, ensure you review your Shareholders’ Agreement and ask your lawyer questions to ensure you fully understand how the Shareholders’ Agreement deals with issues such as buyouts (including shotgun provisions) and valuation. If you do not have a Shareholders’ Agreement, ensure you go back to step 2 and have a good lawyer navigate the waters for you.

4. Going into the “tough conversation” ensure your approach is one of “helping to transition the business” and not a personal attack against the shareholder in question. This approach will help to keep egos in check and will hopefully set the foundation for collaboration throughout the process (albeit, this collaboration will most likely be through lawyers).

5. If you are considering buying out a shareholder you have undoubtedly labored with this decision and have done so over several weeks and even months. Once your decision has been made though, relax in the fact you have tried to make the relationship work and it has not. Life is too short to be in business with people you do not work well with, do not like or even do not respect! You will find, once you have parted ways with the shareholder in question your quality of life will improve…whether the business improves, this will be determined by revenue growth and profitability over time!

Article by Chad Robinson.

You can read more about Chad Robinson here.