Finance to Buy Out a Business Partner: How the Funding Is Structured
Most guides answer the wrong question. The loan is the easy part. What decides whether the deal works is who the borrower is, and that is settled by a legal choice you make before any lender sees the file.
The short answer
Finance to buy out a business partner is usually structured one of three ways: you borrow personally to buy their shares, the company borrows to buy its own shares back, or the exiting owner is paid over time out of the business under a vendor finance arrangement. The choice is not mainly a lending decision. It determines who the borrower is, what security is available, what the deal costs in tax, and in one case it adds a fixed legal timetable that the settlement date has to be built around.
First Question: What Are You Actually Buying?
Australians say “business partner” to mean two completely different legal things, and the difference changes the deal.
If you are in a partnership, there is no separate company sitting between you and the business. The Partnership Act 1892 (NSW) describes a partnership as “the relation which exists between persons carrying on a business in common with a view of profit”, and it expressly says a company registered under the Corporations Act is not a partnership. The firm’s assets are held by the partners themselves. What you buy from an exiting partner is their interest in that property, asset by asset. Section 43 of the same Act treats what is owed to an outgoing partner as a debt, unless the partnership agreement says otherwise.
If you are shareholders in a Pty Ltd, the company is a separate legal entity that owns the business in its own right. What changes hands is shares, which the Corporations Act describes as personal property. The assets do not move. Contracts, licences, leases and employees stay where they are, attached to a company whose ownership has changed.
That second point is why most Pty Ltd buyouts are cleaner to fund. Nothing has to be re-assigned, re-registered or re-consented, so there is less that can fall over between approval and settlement.
One trap worth knowing if you are in a partnership. Buying a partner’s share by assignment does not automatically make the buyer a partner. Section 31 of the NSW Act says an assignee is entitled only to receive the profit share, and cannot take part in management or even inspect the books. Being paid out and being admitted are two different events, and the second one needs the consent of every existing partner.
The loan is the easy part. Who the borrower is turns out to be a legal question, not a lending one.
The Three Ways a Partner Buyout Gets Structured
Assume for the moment you are dealing with shares in a Pty Ltd, which is the common case. There are three routes, and they are genuinely different transactions rather than three names for the same thing.
| Route | Who borrows | What happens to the shares | Approval needed |
|---|---|---|---|
| You buy the shares personally | You, or an entity you control | Transferred to you. You end up owning more of the company | None from the company, unless the company helps you pay for them |
| The company buys its own shares back | The company | Cancelled. Your percentage rises because the total shrinks | A shareholder resolution plus three ASIC lodgements |
| Vendor finance or an earn-out | Nobody, or less than the full amount | Usually transferred on completion, sometimes in stages | Whatever the share sale agreement sets |
Route two is the one people have usually never heard of, and it is often the better fit. If the business generates the cash that will service the debt, it can be more coherent for the business to carry the borrowing than for you to carry it personally and then extract money from the company to make the repayments.
Watch one hard rule though. Once the company buys its own shares back, section 257H of the Corporations Act requires them to be cancelled, and it says plainly that “a company must not dispose of shares it buys back”. So a buy-back cannot be used to park the exiting owner’s shares for a future investor. If you intend to bring somebody new in later, you will be issuing fresh shares, not reselling these.
Route three rarely funds a whole deal, but it very often funds part of one. An exiting owner who takes some of the price over two or three years reduces the amount you need to borrow on day one, and reduces it at exactly the moment lenders are most cautious. It also keeps them invested in a smooth handover.
Who Borrows, and What You Can Borrow Against
Here is where most buyout deals actually get decided, and it is rarely about the interest rate.
A business is largely made of things a lender cannot take security over. Goodwill, a customer list, a strong team, recurring revenue. All valuable, none of it security. So the funding usually lands in one of three places:
- Property security. Either the commercial premises if the business owns them, or residential property owned by you. This is the cheapest money and the most of it, which is why so many buyouts end up secured against a home.
- Unsecured commercial lending. Assessed on the trading performance of the business rather than on an asset. Faster, smaller, and priced accordingly. Often used to bridge a gap rather than fund a whole buyout. See unsecured commercial loans.
- Acquisition finance. Structured around the transaction itself, typically blending security, cash flow lending and vendor finance into one deal. See acquisition finance.
If you borrow against your home for this, it is still business lending
Worth saying clearly, because it surprises people. Whether a loan is consumer credit or business credit depends on what the money is for, not on what secures it. Borrowing against your house to buy out a co-owner is credit for a business purpose. It sits outside the National Credit Code, and you will be asked to sign a business purpose declaration.
That is not a technicality. It means the consumer protections attached to a home loan, including hardship provisions and responsible lending obligations, do not apply in the same way. The security is your house. The protections are commercial. Understand that trade before you make it, not after.
The Legal Steps That Set Your Settlement Date
This is the section that has no equivalent on any other page about partner buyouts, and it is the one most likely to save a deal.
Two of the three routes carry a statutory timetable. The finance and the corporate paperwork have to run side by side, because approval on its own does not let you settle.
If the company buys the shares back
Buying out one shareholder while leaving the others alone is what the Corporations Act calls a selective buy-back. It is the most heavily procedural of the buy-back types. Section 257D requires the terms to be approved before the agreement is entered into, by either:
- a special resolution, meaning at least 75 per cent of votes cast, “with no votes being cast in favour of the resolution by any person whose shares are proposed to be bought back or by their associates”, or
- a resolution agreed to by all ordinary shareholders.
Around that sit three ASIC steps. Offer documents must be lodged before the buy-back agreement is entered into. A notice of intention must be lodged at least 14 days before the resolution is passed. And within one month of the shares being cancelled, the cancellation must be notified.
If you buy the shares personally and the company helps you pay
This is the one that catches people, and it catches them because it looks like nothing. If the company lends you the money, guarantees your loan, or puts up its assets as security so you can buy shares in that same company, you are in section 260A territory.
Section 260A says a company may financially assist a person to acquire shares in itself only if one of three things is true: giving the assistance does not materially prejudice the company, its shareholders or its ability to pay creditors; or shareholders approve it under section 260B; or it falls in a narrow list of exemptions. The section expressly covers assistance given “before or after the acquisition”, so timing is not a way around it.
If you cannot rely on the no-prejudice limb, you are into the approval procedure, and the procedure has a clock in it:
| Step | When | Section |
|---|---|---|
| Lodge the notice of meeting and supporting documents with ASIC | Before the notice goes out to members | 260B(5) |
| Hold the meeting and pass the resolution | After the members’ notice period runs | 260B(1) |
| Lodge notice that the assistance has been approved | At least 14 days before the assistance is given | 260B(6) |
| Lodge the special resolution itself | Within 14 days after it is passed | 260B(7) |
Read the third row again. The 14 days runs backwards from the moment the money moves, not from the resolution. Add the members’ notice period in front of it and the sequence takes roughly five weeks from a standing start before funds can flow. A loan approved on a three week timeline still cannot settle.
There is a way to avoid section 260A altogether, and it is worth knowing because it reframes the whole choice. Section 260C exempts a share buy-back conducted properly under the buy-back rules. So the two routes are alternatives, not layers. Either the company buys the shares back under its own procedure, or you buy them and the company assists you under the approval procedure. You do not need both.
Working to a settlement date on a buyout?
Tell us the structure your accountant and lawyer are proposing and the date you need to complete. We will tell you whether the finance timeline fits inside it, what the lender will want before it can be approved, and where the two timetables collide. No obligation, and no fee at any point.
The Costs Nobody Budgets For
Three of these turn up late and change the amount you need to borrow.
Landholder duty. If the company owns land, buying shares in it can attract duty even though NSW abolished duty on business asset transfers in 2016. Revenue NSW puts the trigger plainly: you may be liable “when you acquire a significant interest, through the acquisition of shares or units, in a company or unit trust scheme that has landholdings over $2 million”. For a private company, a significant interest means 50 per cent or more, and the duty is charged at the same rate as transfer duty. This bites in exactly the situation where it is least expected, which is a business that owns its own premises and a buyer moving from a minority to a majority stake.
Division 7A. If the company puts money in your hands to fund a personal purchase, the ATO can treat it as an unfranked dividend to you rather than a loan, unless it is on a complying loan agreement. The requirements are specific: a written agreement in place before the company’s lodgment day, an interest rate at least equal to the ATO benchmark rate, a maximum term of 7 years unsecured or 25 years where the loan is fully secured by a registered mortgage over real property, and a minimum repayment every year. This one is squarely your accountant’s, but it is worth raising before the structure is settled rather than at the next tax return.
The exiting owner’s tax position, which is really a timing question. What the seller keeps after tax shapes the price they will accept, and Australian capital gains tax law is mid-change. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026. For capital gains events happening before 1 July 2027 the general 50 per cent discount for individuals is unchanged. From that date the legislation replaces it with a different model for most gains, and it also treats assets held across 30 June 2027 as sold and re-acquired at that point. The small business CGT concessions in Division 152 were not removed and their thresholds did not change.
We are not tax agents and this is not tax advice. The reason it appears on a finance page is narrower and practical: the seller’s tax outcome may differ either side of a fixed date, that can move when a deal completes, and when a deal completes is what sets your finance timeline. Get the accountant into the room early rather than after the price is agreed.
What a Lender Wants to See on a Buyout File
Buyouts are assessed differently from ordinary business lending, because the money does not go into the business. It goes out, to a departing owner. A lender is funding a change of control, not growth.
What tends to matter:
- That the business survives the exit. If the departing owner held the client relationships, the technical licence or the tender history, the credit question is whether the earnings being lent against walk out the door with them. Expect this to be the first thing asked and the hardest thing to answer.
- A handover with substance. A transition period, a non-compete, and introductions actually made. This is also the argument for vendor finance: an exiting owner still owed money behaves differently from one paid out in full.
- Financials that reconcile to a price. Three years of figures, current management accounts, and a valuation basis somebody can explain. Buyouts priced on a handshake are difficult to fund.
- Clean corporate records. Shareholdings, the constitution, any shareholders agreement, and whether the constitution restricts buy-backs. Under the Corporations Act a company’s constitution can preclude or restrict a buy-back, so this is worth checking before a route is chosen.
- Who is left running it. On a two-owner business, one owner leaving halves the management team. Depth of the remaining team is a real credit question.
How Intellect Finance can help
On a buyout we do three things. We work out which structure the finance can actually support, before it is locked in, because the cheapest structure on paper is sometimes the one no lender will fund. We map the finance timeline against the corporate and legal timetable, so an approval does not arrive for a settlement that cannot legally happen yet. And we put the borrowing in the right place, whether that is you personally, the company, or a mix, because that choice drives security, serviceability and cost.
What we will not do is advise on the structure itself. Whether the company should buy the shares back or you should buy them personally is a legal and tax question, and it belongs with your solicitor and your accountant. We are not a registered tax agent and we do not give legal advice. What we do is tell you which of the options in front of you can be funded, on what terms, and by when.
Business and commercial lending for a business purpose is not regulated consumer credit under the National Consumer Credit Protection Act 2009, and Best Interests Duty does not apply. We charge you nothing on any loan type, with no arrangement fee and no clawback recovery fee. Penrith based since 2005, holding Australian Credit Licence 390611.
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Frequently Asked
Partner Buyout Finance FAQs
The questions owners ask once a co-owner has said they want out.
Can I get finance to buy out a business partner in Australia?
Yes, and it is a common transaction. It is usually funded by you borrowing personally to buy the shares, by the company borrowing to buy its own shares back, by the exiting owner taking part of the price over time, or by a combination. Which route suits you depends on where the cash flow and the security sit.
Should the company borrow the money, or should I?
It depends on where the servicing capacity and the security are. If the business generates the cash, company borrowing can be more coherent than borrowing personally and extracting money to repay it. If the security is your property, personal borrowing may be simpler. The choice has legal and tax consequences, so decide it with your accountant and solicitor.
Can my company lend me the money to buy out my co-shareholder?
Only within limits. Section 260A of the Corporations Act allows a company to financially assist someone acquiring shares in it only where the assistance does not materially prejudice the company, its shareholders or its creditors, or where shareholders approve it under section 260B, or where a specific exemption applies. There are also tax consequences under Division 7A. Get advice before assuming it.
How long does a partner buyout take to settle?
Longer than the finance alone would suggest. Where shareholders must approve company assistance, the Act requires notice to ASIC at least 14 days before the assistance is given, on top of the members’ notice period for the meeting, so roughly five weeks can pass before funds move. A share buy-back carries its own lodgement and notice steps.
Can I use my home as security to buy out a partner?
Often yes, and it is usually the cheapest security available. Be aware it does not make the loan a consumer home loan. Credit is classified by its purpose, not its security, so borrowing against your home for a business purpose is business lending, you will sign a business purpose declaration, and consumer credit protections do not apply the same way.
Do I pay stamp duty when I buy my partner’s shares?
Not on the share transfer itself in NSW, but landholder duty can apply. Revenue NSW charges it where you acquire a significant interest, being 50 per cent or more of a private company, in an entity with landholdings over $2 million. It is charged at transfer duty rates, so it matters most where the company owns its premises.
What is vendor finance in a partner buyout?
It means the exiting owner is paid part of the price over time out of the business, rather than in full at completion. It reduces what you need to borrow on day one, and it keeps the departing owner financially interested in a clean handover. Most buyouts use it for part of the price rather than all of it.
Is buying out a partner different from buying out a shareholder?
Legally, very. A partnership is a relationship between people who hold the assets themselves, and the Partnership Act says a registered company is not a partnership. In a company you buy shares and the assets do not move. In a partnership you buy an interest in the assets, which usually means more to re-assign and re-consent before settlement.
The bottom line
Almost everything written about funding a partner buyout is a list of loan products. That is the last decision, not the first. The first is whether you or the company is the buyer, because that single choice sets the borrower, the security, the tax treatment and whether a statutory timetable attaches itself to your settlement date.
The uncomfortable part is that these deals are usually negotiated between two people who have worked together for years, and the structure gets settled in a conversation rather than in an advice memo. Price gets agreed, hands get shaken, and only then does anyone discover that the company cannot lawfully fund it on the timeline everyone assumed, or that moving from 40 to 60 per cent of a company that owns its warehouse has triggered duty on the warehouse.
None of that is hard to avoid. It just has to happen in the right order: structure first with your accountant and solicitor, finance mapped against the legal timetable second, price and date committed to last. A broker who asks what the structure is before asking how much you need is asking the right question.
Joseph Sukkar
Joe has spent more than 25 years arranging commercial and corporate lending in Australia, including ownership changes where the finance had to fit a settlement date set by somebody else. Intellect Finance charges clients no fee on any loan type. More about the team.
Sources
Federal Register of Legislation, Corporations Act 2001, compilation in force 27 August 2026, for section 257D on selective buy-back approval, section 257H on cancellation, sections 260A to 260C on financial assistance and the approval procedure, and section 257A on the effect of a company’s constitution. legislation.gov.au
NSW legislation, Partnership Act 1892, for the definition of partnership and the exclusion of registered companies, partnership property, the position of an assignee of a partner’s share, and the treatment of an outgoing partner’s entitlement as a debt. legislation.nsw.gov.au
ASIC, forms and guidance for share buy-back and financial assistance lodgements, for the notification steps described. asic.gov.au
Revenue NSW, landholder duty, for the significant interest thresholds, the $2 million landholding threshold and the rate charged. revenue.nsw.gov.au
Revenue NSW, buying a business and sale of business guidance, for the abolition of transfer duty on business assets from 1 July 2016 and what remains dutiable. revenue.nsw.gov.au
Australian Taxation Office, Division 7A loans by private companies, for the complying loan agreement requirements, the benchmark interest rate and the maximum loan terms. ato.gov.au
Australian Taxation Office, small business CGT concessions, for the concessions available and the eligibility thresholds referred to. ato.gov.au
Federal Register of Legislation, Treasury Laws Amendment (Tax Reform No. 1) Act 2026, Act No. 49 of 2026, Royal Assent 26 June 2026, for the capital gains tax changes referred to and their application dates. legislation.gov.au
Important disclosures, general advice warning and licensing
General information only. This article is general information only and does not constitute financial, credit, legal or tax advice. It does not take your personal or financial circumstances into account. Before acting on any information here, consider whether it is appropriate to your objectives, financial situation and needs.
Legal. Company law, partnership law and transaction structuring are legal matters. The statutory provisions summarised here are described in general terms, are not a complete statement of the law, and their application depends on the company’s constitution, any shareholders or partnership agreement, and the facts. Intellect Finance does not provide legal advice. Obtain advice from a solicitor before structuring or documenting a buyout.
Tax. Intellect Finance is not a registered tax agent. Division 7A, capital gains tax, the small business concessions and the deductibility of interest all depend on individual circumstances. The tax law described here includes measures that are enacted but not yet in effect. Confirm your position with your accountant or a registered tax agent.
Duty. Landholder duty and transfer duty are administered by each state and territory revenue office, thresholds and rates differ between jurisdictions, and the NSW figures given here were checked on the date below. Confirm the current position for your state before relying on it.
State differences. The partnership provisions referred to are from the NSW Act. Other states and territories have their own Partnership Acts with different numbering and some differences of substance.
Business purpose. Lending for the purpose of acquiring an interest in a business is business lending regardless of what secures it. Where residential property is offered as security for a business purpose loan, the consumer protections of the National Credit Code do not apply in the same way, and a business purpose declaration will be required.
Lender policy varies and changes. Descriptions of common practice are general observations, not any lender’s policy. This page publishes no interest rates and names no lenders. No broker can guarantee approval, pricing, a valuation outcome or a timeframe.
Best Interests Duty. Business and commercial lending for a business purpose is not regulated consumer credit under the National Consumer Credit Protection Act 2009, and Best Interests Duty does not apply.
What we charge you. Nothing, on any loan type. No arrangement fee for residential, commercial, corporate, asset, SMSF or personal lending, no fee for complex or specialist lending, and no clawback recovery fee if a loan is discharged early. Lenders pay us a commission on settlement, disclosed to you in writing in our Credit Guide before we provide credit assistance.
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Intellect Finance Pty Ltd holds Australian Credit Licence 390611 and is a member of the MFAA and AFCA. Lending criteria, fees and terms apply. Article checked 16 September 2026.
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Bring us the structure your advisers are proposing, the price and the date you need to complete. We will tell you what can be funded, where the borrowing should sit, and whether the finance timeline fits inside the legal one. If the honest answer is that the structure needs to change before any lender will look at it, that is what we will tell you. Penrith based since 2005, clients Australia-wide. No fee on any loan type. ACL 390611.
General information only, and not legal or tax advice. Structuring a buyout is a matter for your solicitor and accountant. No broker can guarantee approval, pricing or a timeframe.
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