My Business Partner Wants Out: What Happens Now

A co-owner telling you they want out is one of the hardest conversations in business. Handled well, it usually ends with a negotiated sale of their shares. Handled badly, it can end in court. Either way, what happens next depends mostly on documents you signed years ago.

Start with the documents

Read two documents before you respond in writing.

1. The shareholders agreement. It may say what triggers an exit, who must buy, how the price is set, how it's paid, and what restraints apply.
2. The company's constitution. It sets the rules for transferring shares. The constitution operates as a contract between the company and each member, and between the members themselves (Corporations Act 2001 (Cth), s 140(1)).

If your agreement deals with exit properly, follow it. Most of the hard questions are already answered.

If there's no agreement

Many owners are surprised to learn that a departing shareholder has no automatic right to be bought out. Under the default rules, the directors of a proprietary company may also refuse to register a transfer of shares for any reason (s 1072G), although a refusal without just cause can be challenged in court (s 1071F), so the departing owner usually can't simply sell to an outsider either. In practice, that makes it a negotiation.

Who buys, and at what price

The buyer is usually the remaining owners, or the company itself. A company can buy back its own shares only if that doesn't materially prejudice its ability to pay its creditors (s 257A). A buy-back from one owner needs either a special resolution with no votes cast in favour by the selling owner or their associates, or a resolution agreed to by all ordinary shareholders (s 257D(1)). Your accountant advises on the tax effect of each route, which can be quite different.

On price, check your agreement's valuation clause: who values the shares, as at what date, and whether a minority holding is discounted. If there's no clause, the price is negotiated, usually with a valuation. If a court orders a buyout, it fixes a price that is fair in all the circumstances (Smith Martis Cork & Rajan Pty Ltd v Benjamin Corporation Pty Ltd [2004] FCAFC 153).

Three roles, three exits

A departing owner is often a shareholder, a director and an employee. Each role ends separately.

1. Director. A director can resign by written notice (s 203A). The company must tell ASIC within 28 days (s 205B(5)). If ASIC isn't told in time, the resignation generally takes effect only when it is, unless ASIC or the court fixes an earlier date (s 203AA). Under the default rules, a proprietary company can remove a director by ordinary resolution (s 203C), but in a 50/50 company neither owner can outvote the other.
2. Employee. Their employment ends under their employment contract and the Fair Work Act, with notice and entitlements, whatever happens to their shares.
3. Shareholder. They stay a shareholder until the transfer or buy-back is complete.

While they remain a director, their duties continue, including the duty to act in good faith in the company's interests (s 181). Directors and employees must not misuse their position or company information (ss 182 and 183), and the duty about information continues after they leave.

Restraints

You'll want the departing owner not to take customers or staff. In Queensland, a restraint is enforceable only if it's reasonable to protect a legitimate interest, and the courts scrutinise restraints given on the sale of a business less strictly than restraints on employees (GBAR (Australia) Pty Ltd v Brown [2016] QSC 234). Put the restraint in the share sale or exit deed, tied to the goodwill being sold. But courts look at substance: where the sale is really part of ending someone's employment, the restraint may be judged as an employee restraint.

When you can't agree

Most shareholders agreements require negotiation, then mediation, before court. Follow the clause. If proceedings are started in a Queensland court, the court can order the parties to mediation, whether or not they agree (Civil Proceedings Act 2011 (Qld), s 43(3)).

If mediation fails, the court has two main powers:

1. Oppression. If the company's affairs are conducted oppressively or unfairly to a member, the court can make any order it considers appropriate, including that the other members or the company buy the member's shares (ss 232 and 233(1)(d) and (e)).
2. Winding up. The court can wind up a company where it is just and equitable (s 461(1)(k)), for example where the owners' relationship has irretrievably broken down (Kanik, in the matter of ThinkRed Recruitment Central Pty Ltd v Swan Elope Pty Ltd [2025] FCA 462). But it may refuse if another remedy, such as a buyout, is available and the applicant is acting unreasonably in pursuing winding up instead (s 467(4)).

Both are slow, expensive and public. They're the fallback, not the plan.

If you're in a partnership

Unless your partnership agreement says otherwise, a partnership with no fixed term can be ended by any partner giving notice to the others (Partnership Act 1891 (Qld), ss 29 and 35(1)(c)). On dissolution, the partnership's assets pay its debts and the surplus goes to the partners (s 42). If the remaining partners carry on without settling up, the outgoing partner can claim the share of later profits attributable to their share of the assets, or interest at 5% a year (s 45). A retiring partner stays liable for debts incurred before they leave unless the continuing partners and the creditors agree to release them (s 20(3) and (5)).

Your first steps

1. Don't agree to anything, or fire off an email, until you've read the agreement and the constitution.
2. Get your accountant involved early on value and tax.
3. Keep the business running. Customers and staff notice uncertainty.
4. Check the personal guarantees each owner has given to the bank and landlord, and make releasing the departing owner part of the deal.
5. Record the terms in a written exit deed covering the shares, the director's resignation, employment, restraints and releases.

If a co-owner has told you they want out, or you're the one who wants to leave, you can book a consultation with me to work through your options.

The law in this article is stated as at 18 March 2026.

Joe Kafrouni, Director and Accredited Specialist (Business Law), Kafrouni Law

Disclaimer

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