This is Insurance provided to cover the interests of partners in a business. It normally includes an appropriate mix of Life and Disability insurance to support a formal partnership or buy/ sell agreement, designed to provide for an orderly continuation or dissolution of the business on the death or disablement of a partner, and the protection of all partners interests.
- Names of partners and firm
- Nature and place of business
- Term of partnership
- Capital contribution and distribution
- Provision for interest on capital
- Management of business, any special duties, authorisation for cheques and maintenance of books
- Payment of expenses, division of net profits and drawing arrangements
- Death, disability, retirement, withdrawal, admission and expulsion of a partner
- Sale or assignment of interest to an outsider
- Valuation of partnership interest
- Grounds and provisions for dissolution and winding up of the firm
- Arbitration of disputes, non-competition clause, insurance arrangements etc
If you have questions you would like answered email us - here.
A. While your intentions are laudable, in a general partnership each partner is liable for the debts and losses of the partnership either jointly or severally in either equal parts or on some other agreed scale. This needs to be formally stated in a Partnership agreement to provide protection for both parties.
What would happen to your family on your death. Would your spouse or children wish to assume your place as an active partner? Do they have the time or skills? Would your partner be happy to have them involved actively in the business?
We suggest you also consider a buy-sell agreement whereby your partners buy your interest at an agreed price, on death or permanent disability and your family receives the proceeds. Sufficient funds can also be included to cover the many extra costs incurred by the business on the death or permanent disability of either partner.
- It builds a cash value which can be used in an emergency other than death or disability
- Banks, creditors and financial institutions prefer it as it provides additional security
- The cash value can be built to fund any proposed buyout on retirement with a guaranteed sum, rather than a forced sale, or introduction of a third party
A. Death destroys a partnership in more than a legal sense. How will your partners interest be disposed, and the estate settled?. As the surviving partner, you become the liquidating trustee of his /her interest.
Upon death of a partner, normal partnership operations cease. No new contracts, orders or credit arrangements can be initiated. Creditors will demand immediate payment, debtors will be slow to pay, and employees will lose confidence in the future and may leave. Time is important as the business needs to be re-organised quickly.
A. Future profits may also be future losses! You may also be lucky and be able to put a large sum away to meet the buy-out needs. This money is going to takes years to accumulate, and what would you do in the interim? The sum that you will eventually accumulate would earn more for you both if invested directly in the firm, and more than cover the small cost of insurance cover which is immediately available.
- Orderly liquidation
- Buy out the deceased interest
- Take on the beneficiaries as a new partner
- Take in a new partner who will buy out the deceased interest
- Sell their own interest to the deceased heir
- Sell their own interest to an outsider
- Sell the whole business as a going concern to outsiders.
- Dissolution of the business on death of either partner?
- Funds to pay the setae or family of the deceased or disabled partner for his share of the business value assuming the family is not to be directly and actively involved?
- Funds to cover the extra costs of hiring a suitable replacement, training and renewing business relationships with third parties normally handled by the missing partner.
- Funds to settle loans, or creditors who may call for payment when they suspect a significant risk on the death and disability of a partner.
- An agreement on how the partnership is to be managed on death or disability and appropriate funding to cover the above
- The involvement of an objective and skilled third party to act as a trustee to ensure the agreement of the partners is enacted
A. The cheapest form of insurance is term insurance, and it works like the vehicle and fire policies with no accumulation or value on surrender. Like your truck or fire insurance, we would recommend we cover you at replacement value. Like the fire insurance we need to replace the whole building.
- An objective party to ensure any agreements are enacted
- Skill in administering agreements and associated laws
- Monitoring of payments to ensure agreements are funded