Selling ownership of 2-person corporation back to business partner. Best method?

My insight is to tell them to sit down together with an accountant and their actual numbers a d figure out a solution. Getting half-assed answers third-hand based on incomplete information isn’t productive.

C

If your family member will no longer have any ownership in the company, they should never be on the loan for the company.

Let's assume the equity value/valuation of the business is $100, each person owns $50 and no debt.

Below are potential ways to buy a partner out when the other person does not have all the cash required:
1. Buyer goes to lender and gets $50 of debt financing on the business, which is used to acquire the seller's stake. Seller thus never owns the company with this new debt on it.
2. Buyer goes to lender and gets $40 of debt financing (max amount being less than $50), and seller provides a vendor takeback loan (VTB loan or a fancy word for a 2nd debt with 2nd priority to main lender) at an agreed upon interest rate
3. Buyer acquires lender through a $40 upfront payment, and $10 earnout split equally over the first 2 years based on revenue, EBITDA or net income targets being met. If target is under or over-achieved, a higher or lower % of the earnout target is paid. If buyer is able to get $40 through debt financing and cash available, great. If not, consider doing a vendor takeback loan here too

There are lots of ways to skin the cat and get a deal done. Feel free to reach out

This sounds like a leveraged buyout.

Takeovers of large companies are often financed by debt owed by the company itself. If that makes sense in a small business, and what tax implications it may have, is above my pay grade, I'm afraid.