Buy/Sell - Partnership Protection - Succession Planning
What is it?
The last thing you want in business is the death or disablement of a partner. Unfortunately it does happen and can easily result in the disintegration of the business.
So what actually happens if a business partner suddenly dies? Or is permanently disabled or is diagnosed with a serious illness like cancer?
Will family of the deceased or disabled partner want cash representing their share of the business and will they want to have a legal battle and wait for years to get it?
Will the remaining business owners want exclusive ownership and control of the business? Will they suddenly be in business with the deceased owner's spouse or children? Is that a desirable situation?
Most businesses do not have the cash reserves to payout the family of a deceased or disabled partner and this creates enormous problems at an already difficult time.
How can insurance help?
Generally each partner should have insurance cover to the value of their share in the business. If a partner subsequently dies, or is disabled or suffers a serious condition the proceeds of the claim are paid to the policy owner (or their estate/family) in exchange for their share in the business which transfers to the remaining owners.
But you don't just need insurance - you should also consider a properly drafted buy sell agreement prepared by someone who has a clue about these sorts of arrangements as the success of this strategy is underpinned by the legal side of it. There is little point in having the insurance in place if, at the time of claim, there are disputes about why the cover was established and who is getting what. Agreements drawn up by experts in this field are often an inexpensive way to address all of the objectives of the business owners.