Business Partnership Continuity

A Company was set up by a team of ambitious, aggressive, capable and talented people. When business is good, all partners share and harvest the profits. You know that this is result of co-operation, skills and business acumen.

Have you ever thought what would happen if one of the partners dies or become disabled?The financial status of the company would be affected. Unless prior arrangement is made, such unfortunate event could pose a big problem.

normally, a sum of money would go to the deceased partner's estate. The quantum could be a point of contention. And the results in arduous and expensive litigation that can jeopardize the company's position and reputation.
What can the Company do under such circumstances? 

First, allowed the deceased partner's family to join in the business. What if they are not well-versed with the business? What if they could not co-operate well with the existing partners.?

Second, allowed the deceased partner's to sell their share to an outsider. But who will buy over the share? Normally in the business, the fiscal cash had been converted to capital which includes stocks, machinery and etc. The question, how to pay off the deceased's partner sahre in cash.

Third, sell the share to  the existing partners. Will  the partners have enough money to buy the share? Will there be difficulties to determine the price?

Obviously the best way is to draw up a pre-arranged agreement whereby the surviving partners's will buy up the deceased's capital account. The partnership is required to pay the deceased estate his or her share of any profits earned but not distributed before death.

Besides this, the partnership is required to pay the deceased's estate for a fixed number of years either an agreed percentage of subsequent profits or a stated amount of fixed monthly payment. This is known as "income continuation plan"

Even if such a legal agreement exist, the partnership may not have enough funds to buy over the partner's share. Herein lies the usefulness of partnership insurance.

The life of each partner can be insured in the amount of partnership liability of his and her estate. The partner will be owner, premium payer and beneficiary of the policy.

When a partner dies, the sum assured or life insurance proceeds is payable to the partnership. In turn the partnership will use the money to buy the deceased's capital account and to fund the income payment.

Life Insurance will help the partnership fund the income continuation plan in advance as it calls for a known amount to be paid after partner's death. This will relieve  the surviving partner's of any legal wrangler later.