When you and your partner formed the JV, you both expected it to be long-term. But circumstances change. One of you wants to exit. Maybe the relationship has soured. Maybe one partner sees a better opportunity elsewhere. Maybe the JV just didn't work. The exit process matters enormously. Handle it right, and you both walk away fairly. Handle it wrong, and you're locked into a partnership you don't want.
Exit mechanisms in your JV agreement
A well-drafted JV agreement includes clear exit provisions. Without them, exiting is messy and expensive. With them, you know your rights.
The right of first refusal (ROFR)
If you want to sell your stake, your partner usually gets the first chance to buy it. This is a right of first refusal:
"If either partner wishes to sell their stake, they must first offer it to the other partner at the same price and on the same terms as offered to the third party. The other partner has 30 days to accept or decline. If they decline, the selling partner can complete the sale to the third party."
This protects both partners. It prevents one partner from selling to a competitor or unwanted buyer without the other having a chance to buy.
Tag-along rights
Imagine Partner A sells their stake to a third party. Can Partner B be forced to stay in a JV with a new owner? Not if there's a tag-along clause:
"If either partner sells more than 50% of their stake, the other partner has the right to 'tag along' and sell their entire stake to the same buyer on the same terms."
This protects you from being the sole remaining partner with a third party who might want to push you out. You can exit alongside your original partner.
Drag-along rights
The flip side: if the majority partner wants to sell the JV to a buyer, can they force the minority partner to sell too? With a drag-along clause, yes:
"If the partner(s) with more than 75% of the equity agree to sell to a third party, they can force the remaining partner(s) to sell their stakes too, on the same terms."
This prevents the minority from blocking an exit. But it's a two-way street: both partners can be dragged along if the majority decides to sell.
Buy-sell and shotgun clauses
If partners fundamentally disagree and neither can force an exit, a buy-sell clause (or shotgun) can resolve it:
"If either partner wishes to exit, they propose a price for the JV. The other partner can then choose to: (a) buy the proposer's stake at that price, or (b) sell their own stake to the proposer at that price. This ensures fairness: the proposer doesn't know which side of the deal they'll end up on."
This is powerful. If you propose £2 million for the JV and your partner can either buy you out for £2 million or sell their stake for £2 million, you'll be motivated to propose a fair price.
Valuation methods
When one partner exits, what's their stake worth? The JV agreement should specify the valuation method:
Book value: The net asset value on the JV's balance sheet. Simple but often undervalues the business.
Fair market value: What a third party would pay for the stake today, based on comparable transactions or appraisals.
Multiple of EBITDA: "The stake is worth 5 times the last year's EBITDA." Common in profitable businesses.
Discounted cash flow (DCF): Value based on projected future cash flows. Requires forecasting, which is subjective.
Agreed formula: The partners pre-agree a formula. For example, "Each partner's stake is worth their percentage of ownership times the JV's appraised fair market value, as determined by mutual agreement or independent appraisal."
The valuation method matters hugely. One partner might prefer book value (often low). The other might prefer DCF (often high). Agree in advance.
Restrictions on exiting
Some JV agreements include restrictions on exiting:
"Neither partner may exit or sell their stake for the first [3 years] of the JV. After that, they can exit with [12 months notice]."
This locks partners in during the critical early years. Reasonable for a startup JV where continuity matters. But if you're locked in and circumstances change dramatically (the JV fails, the relationship breaks down), you're stuck.
Non-compete and non-solicitation upon exit
When you exit, can you immediately compete with the JV? Can you solicit its customers or employees? Your agreement should address this:
"Upon exit, each partner agrees not to, for [2 years]: (a) compete with the JV in the same market, (b) solicit the JV's customers, or (c) hire the JV's employees. Exceptions may be granted by mutual written consent."
This protects the exiting partner from the remaining partner immediately competing against them. But if non-competes are too broad or too long, courts might not enforce them. A 2-year, market-specific non-compete is usually reasonable.
Earn-outs and deferred payments upon exit
Sometimes, the JV can't afford to pay the exiting partner's stake price upfront. Instead, they structure an earn-out:
"The exiting partner receives 50% of their stake value upon exit, and 50% in monthly installments over [3 years], contingent on the JV hitting performance targets."
This keeps the exiting partner invested in the JV's success (they benefit if it does well). But it also exposes them to risk if the JV fails.
What happens if a partner dies?
If a partner dies, does their estate own the stake? Can the remaining partner forced to work with the deceased's heirs? Address this:
"If either partner dies, the remaining partner has the right to buy the deceased's stake from their estate at fair market value, payable over [12 months]. If the remaining partner declines, the estate can sell the stake to a third party, subject to the remaining partner's right of first refusal."
Some JVs require life insurance on key partners to fund buyouts upon death.
Dissolution and wind-up
If the JV ends, how are assets divided? Who pays liabilities? Your agreement should say:
"Upon dissolution, the JV shall wind up its business, collect receivables, pay all liabilities, and distribute remaining assets proportional to ownership. If liabilities exceed assets, each partner shall contribute proportionally to cover the shortfall."
If the JV is underwater (owes more than it has), be clear about who covers the loss.
Dispute resolution upon exit
Exit disputes often occur: disputes over valuation, whether an exit is permitted, or whether terms have been met. Your agreement should include a dispute mechanism:
"If there's a dispute over valuation or exit terms, the parties shall first attempt negotiation. If unsuccessful within 30 days, they shall submit to mediation. If mediation fails, either party may arbitrate."
Mediation often resolves exit disputes without costly litigation.
Next steps
If you have an existing JV agreement, review the exit provisions. Are they clear? Do they cover all scenarios (voluntary exit, death, disputes)? If you're forming a JV, make sure to include robust exit mechanisms.
Thinking about exiting a JV or worried about your exit rights? Have your agreement reviewed. Upload it to QuickLegalCheck for a detailed analysis of your exit options and protections.