Finance to buy out a business partner or shareholder.

A shareholder buyout is the purchase of one owner's stake in a business by the remaining owners or by the company itself. The trade continues, the customers see nothing change, and the only movement is on the share register and the balance sheet. It is the most common transaction we see that is not a full MBO: a co-founder retiring, a 50/50 partnership where one side wants out, a minority holder whose interests have diverged, or an estate holding shares after a shareholder has died.

Three questions decide the structure. Who buys, the company or the continuing shareholders. Where the money comes from, distributable reserves, new debt, or deferred payments to the leaver. And what the leaver is entitled to under the articles and any shareholders agreement, which frequently contains a pre-emption process, a valuation mechanism and good leaver or bad leaver provisions that override whatever the two sides had assumed. Read those documents before opening the price conversation, not after.

Related routes: a partial management buyout, a full management buyout, or buy-in finance where an external buyer takes the stake.

By multiple, then by adjustment. Adjusted EBITDA is established first, normalising owner remuneration, one-off costs and any related-party charges, then a multiple is applied. Lower mid-market owner-managed businesses commonly trade in a mid-single-digit range, and 5 times is the planning default in our own models. Net debt comes off to give equity value, and the leaver receives their percentage of that. Surplus property or cash held outside the trade is usually valued separately.

Then the adjustments that cause the arguments. A minority stake without control attracts a discount, sometimes a substantial one, because a buyer of 20 percent cannot direct the business or force a sale. A 50 percent holding in a deadlocked company is worth more than pro rata to the person who needs it to gain control. Where the departing shareholder was also the main fee earner, the sustainable EBITDA after their departure is the honest number, not last year's. An independent valuation is money well spent when the two sides are more than 15 percent apart.

Value the business on EBITDA · Valuation guide

Under Part 18 of the Companies Act 2006, a limited company may buy back its own shares out of distributable profits or the proceeds of a fresh share issue, and a private company may in defined circumstances purchase out of capital subject to a solvency process. An off-market purchase needs a shareholder resolution approving the contract, the shares are cancelled or held in treasury, and form SH03 is submitted to HMRC for stamping where consideration exceeds £1,000, with stamp duty at 0.5 percent.

Two practical points come up on nearly every deal. First, the company must pay for the shares in full at the time of purchase, which is why staged payments are handled through a multiple completion contract: the shares are dealt with in tranches, each with its own completion date, and the leaver ceases to be a shareholder for the tranches already completed. Second, distributable reserves are a legal test on the last relevant accounts, not the bank balance, so a profitable company with reserves locked up in stock and debtors may have the reserves but not the cash, which is precisely where a term loan or an asset based facility earns its place.

Funding options: term loans, asset based lending, or deferred payment to the leaver.

On a straightforward share sale to the continuing shareholders, capital gains tax applies at 18 percent for basic rate taxpayers and 24 percent for higher rate taxpayers, with Business Asset Disposal Relief giving 18 percent on qualifying gains up to a £1 million lifetime limit from 6 April 2026, having been 14 percent in 2025/26, per HMRC. On a company buyback the position is less automatic. The default treatment of a distribution by a company to a shareholder is as income, and capital treatment applies only where the conditions in the Corporation Tax Act 2010 are met, including a trade benefit test, a substantial reduction in the holding and a minimum ownership period.

The gap between the two outcomes is large enough that advance clearance from HMRC is standard practice on any buyback where capital treatment is being relied upon, and it should be applied for before the contract is signed. This is squarely a matter for the leaver's tax adviser and the company's accountant. We are not tax advisers and do not give tax advice; our part is making sure the funding structure does not cut across whatever treatment the advisers are relying on, which happens more often than it should when debt is arranged after the tax analysis is complete.

Further reading: buyout tax implications and the documents involved.

The two recurring failures are price and dependency. A stake bought at a valuation the cash flows cannot service leaves the business servicing debt it cannot afford for the sake of a relationship that had already broken down. And a business that loses a co-owner who held key customers, technical capability or the finance function often loses more earnings than the model assumed. Restrictive covenants, a paid handover period and a realistic post-departure EBITDA in the forecast are the practical answers. Where relations have soured, a deferred element gives the leaver an interest in an orderly exit.

Names active in this market include Barclays, HSBC UK, Lloyds Bank, NatWest, Santander UK, Allica Bank among the banks and Close Brothers, Aldermore, Arbuthnot Commercial ABL where the balance sheet is doing the work. That list is illustrative of names active in this market, not a recommendation. Matt Lenzie brings 25 years in banking with significant transactional experience including buyouts, and more than £400m raised across the portfolio, which matters here mainly because share buybacks sit awkwardly with some credit policies and comfortably with others. Larger and sponsor-led transactions are handled by our sister site LeveragedBuyoutFinance.co.uk.

See the funder panel · Discuss a buyout