You’ve had a successful business, growing the enterprise through years of hard work, collaboration and mutual support with your partners. You even formed strong bonds of friendship, forged as you navigated through the ups and downs of the corporate world. The death of a partner in the business can open a Pandora’s Box of problems.
When the Business Takes a Hit
Firstly, losing a business partner is distressing on a personal level. Not only have you lost a friend and confidant, but you now have to chart a course with new individuals, or work with less talent whose goals and vision may not be as hard-set as you had with your partner. All this smack in the middle of managing the business, its employees, and keeping your clients happy.
The financial security of the business is at risk, especially with the stability of the partnership being on the line. While the deceased partner’s stake is typically inherited by his or her next of kin, bringing them on in to help with managing the business will likely take it off the rails. It will take time for the heirs to get acclimated to the business, and working with them won’t be the same as having the original partner around. So, the remaining partners are obliged to buy off their stake, compensating the deceased’s estate for his/her share in the partnership. However, this is bound to cost you a chunk of your money, and could likely expose you to additional risks and liabilities. Regardless though, it’s a necessary step especially if you are passionate about the business and see a profitable future.
Other options are:
- Liquidating the business itself and distributing the funds to the surviving partner’s families. This can be the case where you no longer wish to run the business without the late partner.
- Selling off your own stake to the late partner’s heirs, like the surviving spouse. This is common for small businesses that were primarily ran by the deceased, putting it in the best interest of the surviving partners to sell their share to the family.
For those taking the route of compensating the heirs of the late partner and continuing to manage the business without them, where will the urgent resources come from?
Enter Partnership Insurance
For business owners, there are two key issues: You can’t predict when a partner will pass on, be it age, an accident, caught up in natural phenomena, or health-related problems. Secondly, once it happens, the remaining partners may not have the cash at hand to buy the stake from the deceased family.
Partnership insurance comes in to provide the funds needed to purchase the deceased person’s share of the partnership. After getting the policy, the premiums are paid regularly through its term, depending on aspects like the value of the partnership. In the event of a death of a partner, the insurance policy provides a lump sum payment that is used to compensate their next of kin, leaving the surviving members to continue running the business without interference.
Why Your Business Needs It
The death of a business partner comes with financial and legal hurdles for the enterprise. Liquidity challenges and a tough business environment add to the financial pressure that the remaining partners will have in providing the deceased partner’s next of kin what they are legally obliged to pay – where the capital sum is usually required immediately. This can include undrawn profits, the cash equivalent of the share of fixed assets that the partner had, as well as any balance in capital.
Start your journey here
Safeguard your business and its interests by identifying suitable partnership insurance policies with Quigley Financial Brokers, where we will walk you through the different options and help you pick the right plan for your needs. We shop around with all the leading insurance providers on the market to get you the best rate, saving you the legwork and give you unbiased information for you to proceed with confidence.