Statute and SBA lending rules read firsthand, 2 September 2026

Partnership Buyout Agreement: Buying Out a Business Partner, Partner Buyout Financing and Valuation

A partnership buyout is the transaction where one owner acquires another owner's stake and the business carries on. It looks simpler than buying a company from a stranger, and in one respect it is: you already know the numbers. In every other respect it is harder, because you are negotiating with someone you have worked beside, on a price with no bidders, under a partnership agreement that was probably written years ago by people who never expected to use it.

See how it works → See the comparison ↓

Verified metrics · published multiples · vetted buyers · escrow-backed closes

AI SaaS deal deck Sample

Sort

Max asking Min MRR

No deals match those filters yet. Widen your range.

Sample cards showing the listing format · not live listings

Verified MRR / ARR Published multiples Vetted, capital-qualified buyers Escrow-backed closes AI-SaaS-native

Three decisions do almost all of the work. The first is who buys the stake. If you buy it personally, that is a cross-purchase and it is governed by section 741, which treats the departing partner's gain as capital gain except for the unrealized receivables and inventory that section 751 pulls out. If the business buys it back, that is a redemption, and section 736 applies instead. The second is how it is paid for, which is where the SBA rules matter more than most buyers expect, because a partner buyout is the one small business acquisition where you can legitimately need close to nothing down. The third is what the stake is worth, which is not your equity percentage multiplied by a number you both like.

The fact worth reading twice is buried in section 736(b)(2). When the business redeems a departing general partner in a firm where capital is not a material income producing factor, payments in exchange for an interest in partnership property do not include amounts paid for goodwill, "except to the extent that the partnership agreement provides for a payment with respect to good will." A clause somebody either wrote or did not write, long before this conversation started, decides whether the goodwill slice of your buyout is capital gain to your partner or a deductible payment out of the partnership. Read your partnership agreement before you name a price, not after.

Buyouts is a marketplace for AI SaaS where MRR, ARR, growth and churn are verified before a listing goes live. Browsing is free and buyer membership is planned rather than currently on sale, and listings shown in the product are illustrative UI. Nothing on this page is tax, legal or lending advice. The statutory citations below were read firsthand on the dates given so that you can check them yourself, and the application of any of it to your deal is a question for your own accountant and attorney.

The structure decides the tax and the financing decides whether you can afford it, and both are settled by documents written before the negotiation starts. Read the buy-sell clause and the SBA equity injection test before you name a number.

Internal Revenue Code sections 736, 741, 743, 751 and 754, read on law.cornell.edu, 2 September 2026

The four ways a partner buyout is actually structured, and what each does to the tax

Every partner buyout is one of these, or a deliberate blend of two. The structure is not a formality chosen by the lawyer at the end. It changes who signs the check, what the departing partner pays in tax, and whether you get a basis step-up in the assets you just paid for.

Swipe to see every column →

Structure	Who pays the departing partner	Governing section	Tax character to the departing partner	What the remaining owner gets
Cross-purchase	You do, personally, from your own funds or a loan in your name	Section 741, with section 751 carve-outs	Capital gain on the sale of the partnership interest, except unrealized receivables and inventory items, which are ordinary	Cost basis in the interest you bought. With a section 754 election in place, a section 743 adjustment to the basis of partnership property
Redemption by the entity	The partnership or LLC does, from company funds or company borrowing	Section 736, with section 734 on the basis side	Split. Section 736(b) property payments are treated as a distribution. Section 736(a) payments are a distributive share or a guaranteed payment, and ordinary to them	No personal outlay, and your percentage rises automatically. Company cash leaves, so the balance sheet weakens before the lender looks at it
Hybrid, part cross-purchase and part redemption	Both, in an agreed split	Sections 736 and 741 together, applied to the respective slices	Determined slice by slice, which is the point of doing it this way	Some personal basis and some automatic accretion. Used to balance who has cash against who wants basis
Installment or seller note buyout	You or the entity, over time, under a promissory note	Same as the underlying structure, with instalment reporting on top where it applies	Gain generally spread across the payment years rather than recognized at once, subject to the instalment sale rules	Time. The departing partner funds part of their own exit, which is why this is the most common structure on small deals

Section 741 provides that on a sale or exchange of an interest in a partnership, gain or loss is considered gain or loss from the sale or exchange of a capital asset, "except as otherwise provided in section 751 (relating to unrealized receivables and inventory items)". Section 736(a) treats liquidation payments as a distributive share where the amount is determined with regard to partnership income, or as a guaranteed payment under section 707(c) where it is not. Section 754 provides that on a valid election the basis of partnership property is adjusted, on a transfer of a partnership interest, in the manner provided in section 743. All read firsthand from law.cornell.edu on 2 September 2026. An LLC taxed as a partnership follows these rules; an LLC or corporation taxed differently does not, and an S corporation buyout is a different analysis entirely. This is not tax advice and the classification of any specific payment depends on facts this page does not know.

SBA SOP 50 10 8, effective 1 June 2025

What the SBA makes you put down on a partner buyout, and why it can be nothing

A partner buyout is the one small business acquisition where the standard 10% equity injection can legitimately drop to less than that, including to zero. There is a two-part test, and it is worth knowing before you assume you need a down payment you may not need.

Swipe to see every column →

Situation	Equity injection required	What the lender must see	Where the rule sits
Partner buyout where the remaining owner passes both tests	Less than 10% may be allowed, potentially none	Certification that the remaining owner or owners have been active in the business and held the same or higher ownership interest for at least the preceding 24 months, and a debt-to-worth ratio no greater than 9:1 before the change	SOP 50 10 8 equity injection provisions
Partner buyout where either test fails	The lesser of two amounts, not both	Either cash sufficient to bring debt-to-worth to no greater than 9:1, or cash of at least 10% of the business purchase price, whichever is the lesser figure	SOP 50 10 8 equity injection provisions
Partial change of ownership generally	Less than 10% may be allowed	Debt-to-worth no greater than 9:1 before the change, shown on the balance sheets for both the most recent fiscal year and the current quarter	SOP 50 10 8 equity injection provisions
Complete change of ownership, for contrast	Minimum 10%	Ten percent of total project costs, defined as all costs required to complete the change of ownership, which is a larger base than the purchase price alone	SOP 50 10 8 equity injection provisions
Using a seller note as part of the injection	Capped at half the required injection	The note must be on full standby for the life of the SBA loan, and it cannot exceed half of the SBA-required injection, so 5% of a 10% requirement	SOP 50 10 8, restated in SOP 50 10 8.1
Any loan numbered on or after 1 October 2026	Same injection, tighter everything else	A debt service coverage floor of 1.25 on an owner buyout, no projections in the coverage calculation, and a lender-ordered quality of earnings report at a purchase price of $3,000,000 or more	SOP 50 10 8.1

The equity injection rules are quoted from the review of SOP 50 10 8 published by Starfield & Smith, an SBA lending law firm, written by Michelle Sergent Kaas and dated 6 May 2025, and independently corroborated by Windsor Advantage on 28 July 2025 for the partial change of ownership and seller note provisions. We use those readings because the SBA does not publish the SOP in a form automated tools can retrieve, a limitation we have hit repeatedly and state rather than paper over. The 1 October 2026 changes are as described by Jeffrey Bardos of Speritas Capital on 27 August 2026, who lists owner buyout explicitly alongside initial acquisition and ESOP in the 1.25 coverage tier. The date that governs is the date your lender is issued a loan number, not the date you sign. Confirm every figure with your own lender, who applies these rules, rather than with this page.

Side by side

Buying out a partner on verified numbers versus on the numbers you both assume you know

A fair look at what each does well. Both are useful. Here is where they differ.

Feature	Buyouts	Agreeing a number and working it out later
Starting price	An independent view of enterprise value, then the stake derived from it	A percentage of a revenue figure one of you quoted from memory
The partnership agreement	Read first, because the buy-sell and goodwill clauses set the tax	Found in a drawer after the price is agreed and the tax is already fixed
Structure	Chosen deliberately between cross-purchase and redemption for basis and cash reasons	Whichever one the first draft happened to use
Financing	The 24 month and 9:1 tests checked before a down payment is assumed	A ten percent down payment budgeted that may not have been required
Earnings quality	Trailing earnings adjusted and evidenced, which is what a lender will underwrite from 1 October 2026	Forward projections, which the new rulebook excludes from coverage entirely
Goodwill	Priced and documented, with its tax character understood by both sides	The residual nobody discussed until the returns were filed
Documents	A buyout agreement, a note if there is one, and a closing set that match each other	A one page memo and a wire

Comparison reflects general, publicly understood positioning. Capabilities change, so check each marketplace for the latest. Trademarks belong to their owners.

Why founders and buyers pick Buyouts

One deal room built specifically for AI SaaS

The clause you never read decides the tax

Section 736(b)(2) excludes goodwill from payments made in exchange for an interest in partnership property, on a redemption of a general partner where capital is not a material income producing factor, "except to the extent that the partnership agreement provides for a payment with respect to good will". That single conditional is worth real money to whichever side it favors. If the agreement provides for goodwill, the payment falls under section 736(b) and is treated as consideration for property. If it is silent, the goodwill slice lands in section 736(a) and is ordinary income to the departing partner while the partnership gets the deduction. Neither outcome is wrong. What is wrong is discovering which one you signed up for in April.

The 24 month test is worth more than any negotiation

On a normal business acquisition the SBA wants at least 10% of total project costs from you in cash. On a partner buyout, if the remaining owners certify that they have been active in the business and held the same or higher ownership interest for at least the preceding 24 months, and the debt-to-worth ratio is no greater than 9:1 before the change, less than 10% may be allowed. Very few buyers check this before they start saving for a down payment, and on a $900,000 buyout the difference between passing and failing that test is roughly $90,000 of your own cash. Ask your lender about it in the first conversation, not the fifth.

Value the company, then derive the stake

Buyers reverse this constantly. They agree a number for the stake and reason backwards to an implied company value that neither of them would have accepted if it had been stated out loud. Establish enterprise value first, on trailing adjusted earnings and a multiple you can defend, then subtract debt, then apply the ownership percentage, then discuss whether a minority position deserves a discount and whether your partnership agreement already answers that question. A lender will require an independent valuation on a change of ownership in any case, so the number is going to be tested by someone.

Good questions

Buying out a business partner, answered

One owner acquires another owner's stake and the business continues. Either you buy the interest personally, which is a cross-purchase, or the business redeems it, which is a liquidation of that partner's interest. You agree a value for the whole company, derive the stake from it, sign a buyout agreement that transfers the interest and releases both sides, fund it with cash, a bank loan, a seller note or a combination, and update the operating agreement and the tax filings to match.

Value the entire business first, then take the departing partner's share of it. Start with trailing twelve month adjusted earnings, apply a defensible multiple for the size and sector, subtract debt and add surplus cash to reach equity value, then multiply by the ownership percentage. Only after that do you argue about a minority discount, unpaid loans between the partners, and anything the partnership agreement already dictates about how the price is set.

The stake itself is the ownership percentage applied to the equity value of the business, so there is no general answer. The transaction costs around it are more predictable. Expect legal drafting in the four figures, an independent business valuation from roughly $1,900 to $3,900 on the published ladders we could verify, and, if you finance it with an SBA loan and the price is $3,000,000 or more, a lender-ordered quality of earnings report from 1 October 2026.

The four realistic sources are your own cash, a bank loan, an SBA 7(a) loan, and a note from the departing partner paid over time. Most small buyouts use two of the four. An SBA 7(a) partner buyout is often the cheapest route because it can require less than the usual 10% injection when the remaining owner has been active with the same or higher stake for 24 months and debt-to-worth is 9:1 or better. Seller notes used toward the injection must be on full standby for the life of the loan.

Yes. A partner buyout is a change of ownership and it is eligible for SBA 7(a) financing, and the rules treat it more favorably than a purchase from an outside seller on the equity injection. From 1 October 2026 an owner buyout must clear a debt service coverage ratio of 1.25 rather than 1.15, coverage must be shown on trailing or two year average historical earnings rather than projections, and every change of ownership needs a lender-engaged independent valuation.

For the departing partner, yes, in almost every case. Section 741 treats gain on a sale of a partnership interest as capital gain, except for the amounts section 751 attributes to unrealized receivables and inventory items, which are ordinary. On a redemption, section 736 splits the payment between property payments and payments treated as a distributive share or guaranteed payment. The buyer is not taxed on the purchase, but the structure determines the basis they end up with.

The purchase price is not deductible as an expense. What you may get instead is basis, recovered over time. In a cross-purchase you take cost basis in the interest acquired, and if the partnership has a section 754 election in place, section 743 adjusts the basis of partnership property in your favor. On a redemption, section 736(a) payments are generally deductible by the partnership while section 736(b) property payments are not.

Section 754 lets a partnership elect to adjust the basis of its property when an interest changes hands. With the election, section 743 gives the incoming or increasing partner an inside basis adjustment matching what they paid, so depreciation and amortization follow the real economics. Without it, you can pay a premium for a stake and get no corresponding basis in the underlying assets. The election binds future years and is not costless to administer, so it is an accountant decision.

Decide first who pays: you personally, in a cross-purchase, or the entity, in a redemption. A cross-purchase gives you basis and keeps company cash on the balance sheet, which matters if a lender is about to test your debt-to-worth. A redemption costs you nothing personally and lifts your percentage automatically, but it drains the company. Then decide how much is paid at closing versus over time, and get the goodwill treatment written into the agreement either way.

Start with the operating agreement, which usually contains a buy-sell provision setting out who may buy, how the price is determined, and on what notice. Follow it, because a buyout done outside its terms is contestable. A multi-member LLC taxed as a partnership follows the partnership rules above, so the cross-purchase and redemption fork applies in the same way. If the LLC becomes single member after the buyout, its tax classification changes, which is a consequence worth planning for rather than discovering.

At minimum: the interest being transferred and the effective date, the price and the payment schedule, the treatment of goodwill, any promissory note terms with security and default provisions, releases on both sides including from personal guarantees, the departing partner's obligations on confidentiality and non-competition, allocation of the current year's profit and loss, and confirmation of who signs the tax returns. The goodwill clause is the one most often omitted and the one that changes the tax.

The same way as any other stake, with one complication: a 50% interest is neither controlling nor clearly a minority, so the usual discount arguments cut both ways and tend to cancel. In practice the deciding factor is who can walk. If the business depends on the departing partner, that is a discount to the price. If it depends on the one staying, the departing partner has less leverage than the percentage suggests. Put an independent valuation between the two positions before either side commits.

Read the buy-sell provision first, because many partnership and operating agreements contain a shotgun or forced sale mechanism, a right of first refusal, or a valuation procedure that can be triggered unilaterally. If the agreement is silent, you are in a negotiation with no deadline, and the remaining routes are a voluntary dissolution, a sale of the whole business to a third party, or litigation. This is the point at which the legal cost stops being optional.

Yes, on a change of ownership the lender needs an independent valuation from an accredited Qualified Source, and the credential list runs ASA, CBA, ABV, CVA and BCA. The critical detail is that the lender must engage the appraiser directly. A valuation you commissioned yourself, or one your partner obtained, cannot satisfy the loan file however well credentialed the author. Order nothing before you have asked your lender who engages it.

Two to four months is typical when both sides agree on the direction, and the bottleneck is almost never the negotiation. It is the valuation, which runs from about five business days on a rush to two or three weeks standard and does not start until the lender orders it, and then the loan underwriting. If the buyout is contested, the timeline stops being predictable at all.

Over time is more common on small deals and it is usually better for both sides. The departing partner spreads the gain across the payment years under the instalment rules rather than recognizing it all at once, and you preserve cash for the business you now own more of. The cost is that you are still financially entangled with someone who has left, so the note needs real default and security terms rather than a payment schedule and goodwill.

For anything beyond a nominal stake, yes, and you want an accountant in the room at the same time. The structural choices that decide the tax are made when the agreement is drafted, not when the returns are filed, and by then they are fixed. Business and corporate attorneys commonly bill $250 to $400 an hour, which is a small fraction of the tax difference between two structures on a mid six figure buyout.

More comparisons

See how Buyouts compares

vs Acquire.com

Acquire.com alternative

An AI-SaaS-native marketplace with verified metrics, published multiples and vetted buyers, not a generalist startup listing wall.

vs Flippa

Flippa alternative

A curated, metrics-verified, vetted-buyer marketplace for AI SaaS, not a high-volume auction wall.

vs MicroAcquire

MicroAcquire alternative

An AI-SaaS-focused marketplace with verified metrics and real deal-flow tooling, not a generalist micro-startup feed.

vs Empire Flippers

Empire Flippers alternative

A self-serve, AI-SaaS-native marketplace with published multiples and escrow, not a content and eComm brokerage.

vs FE International

FE International alternative

A self-serve, AI-SaaS-native marketplace with verified metrics and published multiples, not a high-minimum sell-side advisory.

vs ROBS 401k

ROBS 401k

How a ROBS 401k actually works, what the IRS says about it in its own words, what the providers charge to set it up, and the exit fee none of them put in the brochure.

See how buying works See how selling works See pricing

The deal room for AI SaaS, not a yard sale

Buy with verified metrics, published multiples and escrow-backed closes, or list your AI SaaS to a pool of vetted, capital-qualified buyers.

Listings, metrics and buyers shown are illustrative product UI · valuation content is educational, not a guaranteed sale price or return · trademarks belong to their owners