In a jointly owned business or partnership, it is critical to have open dialogue with the co-owner. If one of the parties wants to remain in business, the parties should read their agreements and consider the co-owner’s right of first refusal, consent or notification rights and change of control procedures.
Co-owner’s Right of First Refusal
In general, a right of first refusal is the right of a person to buy something before the offer is made available to others. A right of first refusal is often stated in an agreement between the business owners. Thus, the parties will need to refer to their agreements. If your agreement with your co-owners contains a right of first refusal provision, you must offer to sell your share of the business to the co-owners before offering it to anyone else.
Co-owner’s Consent and Notification
Even if the co-owners do not have, or decide not to pursue, a right of first refusal, they may still want to have some control over who gets your share of the business. Before selling your interest, you should check to see if the owners’ agreement requires a seller to get consent from the other co-owners. The agreement may at least require you to tell the co-owners about the sale. If provisions like this exist in the contract, you must abide by them.
Change of Control
Furthermore, if you and others jointly own the business and you wish to sell your share, you should determine whether any contracts related to the business require notification to anyone upon a “change of control.” A change of control can occur when a business owner sells their portion of the business. For example, some contracts require that upon a change of control, a business owner, before selling his or her interest, notify the bank that loaned money to the business, the bank that holds the business’ mortgage, or any entity that gave a license to the business. If your contract contains a change of control provision that is triggered by the sale of your interest, then you must abide by the terms of that provision.