The short answer, explained
A buyout can stall long before anyone argues about the arithmetic. The usual cause is that the two sides have different answers to earlier questions: which date, what basis of value, which interest, which valuer, and what happens to money owed between the company and the person leaving. Settling those questions in writing before a valuer starts is the best protection against delay and a second round of argument.
Settle five questions in writing before the valuer starts
Which date
The date on which value is measured.
What basis of value
Market value, fair value as defined in the agreement, or a formula.
Which interest
The exact shares or units, their class, and whole company pro rata or the specific parcel.
Which valuer
One jointly instructed, one each, or one named in the agreement.
What happens to loans
Money owed between the company and the person leaving, dealt with separately from the shares.
This page is a preparation checklist for both sides. For an overview of the buyout process itself, Oliver Group, the Valuo practice for restructures, tax and buyouts, publishes a guide on how to buy out a business partner.
1. Read the agreement first
For a company, the constitution and any shareholders agreement operate as contracts (section 140 of the Corporations Act 2001 deals with the constitution and replaceable rules). For a partnership, the partnership deed governs. Read them for:
- Trigger events: retirement, death, incapacity, deadlock, breach or simple choice to leave.
- Notice and timing: how notice is given and the deadlines that follow.
- Price mechanism: a fixed figure, a formula, or value determined by a valuer on stated assumptions.
- Valuer appointment: who chooses, what happens if the parties cannot agree, and whether the valuer's decision is binding.
- Payment terms: lump sum, instalments, security and interest on deferred amounts.
- Restraints: non-compete and non-solicit obligations on the departing owner, which can affect the value of what remains.
If there is no agreement, or it is silent on a point, the parties must agree that point themselves, preferably with legal advice.
2. Agree the valuation date, basis and interest
Three items should be written down and signed off by both sides before the valuer is engaged.
Valuation date. The date on which value is measured. It may be fixed by the agreement (for example the date of a notice) or agreed. Trading after that date generally should not change the answer unless the instructions say so.
Basis of value. Market value, fair value as defined in the agreement, or a formula. The basis decides questions such as whether a minority adjustment is allowed. Our guide on whether a minority shareholding is worth its percentage explains why this matters.
The interest. The exact shares or units, their class, and whether the valuation is of the whole company divided pro rata or of the specific parcel. Our guide on business, shares or units helps here.
3. Choose between a single joint valuer and one each
| Approach | Advantages | Drawbacks |
|---|---|---|
| Single valuer, jointly instructed | One set of instructions, one fee, one number, faster | Both sides must agree the instructions and the person |
| Each side engages its own valuer | Each party has its own adviser | Two fees, two numbers, often a third step to resolve the gap |
| Agreement names an independent valuer or nominating body | Removes the argument about who to appoint | The named person may be unavailable or conflicted |
Whichever approach is used, the instructions should be in writing and copied to both parties. The ATO's guidance on market valuations, written for tax purposes, is a useful reference for what good instructions cover: the scope and purpose, the valuer's independence, access to records and a fee that does not depend on the outcome.
4. Assemble the documents
Both sides should have access to the same information. A typical request includes:
| Document | Why it is needed |
|---|---|
| Constitution, shareholders agreement or partnership deed | Defines the interest, the process and the price mechanism |
| Share register or unit register | Confirms who holds what, and in which class |
| Financial statements and tax returns, usually three to five years | Basis for maintainable earnings and the balance sheet |
| Management accounts to the valuation date | Current trading and the balance sheet at the date |
| Loan account ledgers for every owner | Identifies amounts owed to or by each owner |
| Owner remuneration and benefits | Needed to normalise earnings fairly |
| Bank and finance facility statements | Debt to be deducted at the valuation date |
| Key contracts, the premises lease and any guarantees | Risks and obligations that affect value and the transaction |
Our guide to preparing financial information for a valuation covers the financial records in more detail.
5. Identify every loan between the company and the exiting owner
Loans are a common source of confusion. An owner may have lent money to the company, or borrowed from it. These balances are separate from the shares, and each needs to be dealt with on its own terms.
A loan is separate from the shares, and which way it runs decides how it affects equity value
Who owes whom?
The company owes the exiting owner
A liability of the company. It reduces equity value, and the owner is separately entitled to repayment on the loan's terms.
The exiting owner owes the company
An asset of the company, if recoverable. It is included in equity value, and the owner separately owes the money back.
Where a private company has lent to a shareholder or an associate, Division 7A of the tax law may treat the loan as a dividend unless it is repaid before the company's lodgment day or an exclusion applies. Forgiving or offsetting such a loan as part of a buyout can have tax consequences. Ask your tax adviser before agreeing how loans will be settled. See shareholder loans and how cash and debt affect a valuation.
Worked example (hypothetical)
This example is hypothetical, with round numbers, and ignores tax.
Three equal shareholders. The agreed basis is a pro-rata share of total equity value. The exiting shareholder owes the company $60,000, which the valuer has assessed as recoverable, so it is already included as an asset in equity value.
The share price stays $400,000, and an agreed offset leaves $340,000 net cash
- Exiting shareholder's one-third share of $1,200,000$400,000
- Loan repaid to the company, if the parties agree to offset−$60,000
- Net cash to the exiting shareholder$340,000
| Step | Item | Amount |
|---|---|---|
| 1 | Equity value of all shares (includes the $60,000 loan receivable) | $1,200,000 |
| 2 | Exiting shareholder's one-third share (1 divided by 3) | $400,000 |
| 3 | Loan the exiting shareholder must repay to the company | $60,000 |
| 4 | Net cash to the exiting shareholder if the parties agree to offset (2 less 3) | $340,000 |
The share price remains $400,000. The offset is a settlement mechanism, not a change in value. If the remaining owners buy the shares personally, the company is still owed the $60,000; an offset only works if the parties agree that the buyers pay that amount to the company on the exiting shareholder's behalf, so the buyers' total outlay is still $400,000. If the company buys back the shares, it can set the loan off against the price. Whether to offset, and how, is a legal and tax question, not a valuation one.
6. Plan the timeline
A realistic sequence is:
- Notice under the agreement, or a written agreement to proceed.
- Agreement on the valuation date, basis, interest and valuer.
- Written instructions issued to the valuer, copied to both sides.
- Documents provided and questions answered.
- Draft report, with a chance to correct factual errors.
- Final report.
- Transaction documents, tax advice and completion.
Delays usually come from steps 2 and 4. Deadlines in the agreement can run while those steps are unresolved, so check them early.
7. Settle how the price will be funded
The buyer may be the remaining owners personally, the company, or an outside party. Each route has different legal, tax and banking consequences.
- Remaining owners buy with savings or borrowings. A lender will want the valuation and financial statements.
- The company buys back the shares. Under section 257A of the Corporations Act 2001, a company may buy back its own shares only if the buy-back does not materially prejudice its ability to pay its creditors and it follows the required procedures. The constitution may restrict buy-backs.
- Instalments or vendor finance. Agree security, interest and what happens on default.
Confirm funding before the price is final. A price that cannot be paid leads to renegotiation.
Limitations
This page is general information, not legal or tax advice. It does not interpret any particular agreement or deal with court-ordered buyouts, family law property settlements, or the capital gains tax position of either party. Partnership and trust structures have their own rules. Where the parties are related, a market valuation may be needed for tax purposes; your tax adviser can confirm.
Next steps
- Both sides: locate the agreement and list its trigger, notice, price and valuer provisions.
- Agree the valuation date, basis and interest in a short signed note.
- Download the business valuation preparation pack to collect the documents.
- Ask your accountant to reconcile every owner loan account to the valuation date.
- Oliver Group, the Valuo practice for restructures, tax and buyouts, prepares buyout valuations on joint or single-party instructions.
Questions
Do we need a valuation if the agreement fixes the price?
Not always. If the agreement sets a fixed price or a formula that still works, the parties may simply apply it. A valuation may still be useful for tax purposes or where the formula no longer reflects the business.
Should we use one valuer or one each?
A single valuer jointly instructed is usually quicker and cheaper and avoids two competing numbers. Separate valuers can suit parties who do not trust each other, but they often lead to a third step to reconcile the reports.
Can the company buy the shares instead of the remaining owners?
A company can buy back its own shares if the buy-back does not materially prejudice its ability to pay creditors and the Corporations Act procedures are followed. The constitution may restrict buy-backs. Get legal and tax advice before choosing this route.
Sources
- Corporations Act 2001 (Compilation No. 148, Volume 1, as at 27 August 2026), Federal Register of Legislation. s140 constitution and replaceable rules operate as a contract; s257A a company may buy back its own shares only if the buy-back does not materially prejudice its ability to pay creditors and it follows the required procedures.
- Loans by private companies, Australian Taxation Office. A loan by a private company to a shareholder or associate can be deemed a dividend if not repaid before the company's lodgment day, unless an exclusion applies.
- Market valuation of assets, Australian Taxation Office. Market valuations may be needed for non-arm's length transactions, including share transfers between related parties; sets out what instructions to a valuer should cover.
Cite or reuse this page
Valuo Insights team (2026). Preparing for a shareholder or partner buyout. Valuo. https://valuo.com.au/insights/preparing-for-a-shareholder-buyout/ (updated 14 November 2026).
Quote short passages with attribution and a link to this page. Charts and tables created by Valuo may be republished unchanged with the credit "Source: Valuo (valuo.com.au)" and a link. Third-party sources keep their own terms. See the reuse terms.
General educational information, not financial, tax or legal advice. Worked examples are hypothetical and do not value a real business. A valuation depends on its purpose, the evidence and the agreed scope.