What happens if your Business Partner Dies?
I know; it’s all very morose, isn’t it? The mere thought of loosing someone that you trust and work with on a daily basis is pretty harrowing. Leaving aside the emotional trauma for a moment, have you ever considered what the future impact on your business would be?
The Partnership Act 1890 stipulates that a partners share of the business becomes a ‘debt’ to their estate at the date of their death. So, depending on the market value of the business, the surviving partner/s may have to come up with a substantial amount of money; if they want to retain control of the business. Of course, an alternative might be allow the deceased partners spouse/representative to step into their shoes, but would this constitute good business practice?
In addition, we are all aware of how difficult it is to borrow money at the moment, so going cap in hand to your bank looking for a substantial loan may not be an option open to you. All the more so, if your business is in a down-ward cycle.
This is where ‘Partnership Insurance’ can help you and the deceased partners next-of-kin. You can ‘Insure’ the value of each partners share in the business so that funds are available to deal with the ‘debt’ that will be owed to the estate of the deceased partner. I’m not going to go into the technical structure of this type of agreement here, but suffice to say that it will require input from your financial advisor/s and legal representative/s.
Being in business with someone is like being ‘married’ to them and their next-of kin. We have little or no hesitation in taking out life insurance on our spouses but; when it comes to our business partners we sometimes forget the consequences for our businesses and our deceased partners family.
Should we give ‘partnership insurance’ the consideration it deserves?