Monday, October 13, 2008

Partnership Insurance

The sudden death/incapacity of a partner in a business can be a traumatic time for all concerned. Notwithstanding the emotional damage that will be caused to the family and work colleagues, it can also have very serious consequences for the future of the business.

The financial burden of dealing with such an event will fall mainly on the remaining partner/s to resolve, so it may be prudent to agree on a compensation package, to limit the potential damage to the business, prior to an untimely event, such as the death or incapacity of a partner.

It is possible for business partners to put a monetary agreement in place, whereby the value of each partners share in the business can be 'insured'. This has the effect of protecting the family of the deceased/incapacitated partner, by having funds available to the business. These funds will be used to buy the deceased/incapacitated partner's share of the business, so that the existing partnership will not have to be dissolved; and ensures that the remaining partner/s retain control of the firm.

There are a number of different ways in which a 'Partnership Insurance' can be structured and it is important to discuss these, along with agreed valuations of the business, with your financial advisor and legal representative before the 'compensation agreement' is set up. There are also strict Revenue and Tax Guidelines that must be adhered to, so it is equally important that these are given due consideration.

This type of insurance is worth exploring if you are in business with someone else. The consequences of not having it can jeopardise the future of a thriving business or lead to financial hardship for a partner's family.

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