Protecting your business 

For both limited companies and partnerships, it is extremely important for a business to protect its assets through insurance (for example, buildings, machinery and company cars). However, many businesses ignore their insurance requirements as far as the individual owners themselves are concerned. This may prove to be a false economy. 

Consider the situation where three partners carry on a trading business. That business will have a value and if one of the partners were to die what would be the outcome? 

His or her partnership share would normally pass according to the provisions of their will (it is very important for business people to have a will). This means that their share in the partnership would almost certainly be left to one or more members of their family. 

The problem is that it would be a rare event if the beneficiary is able to take over the role of the deceased in the partnership. Also, would the other partners find that individual acceptable to them as a fellow partner? 

Ideally, the partnership share of the deceased should go to the remaining partners and the monetary value should end up with the family members. 

It is unlikely that the surviving partners would be able to afford to buy the partnership share of the deceased without borrowing some or all of the funds required. And what if the new owner did not wish to sell? 

There are a couple of ways of approaching this potential problem. One is for all the partners to agree in writing that, should one of them die, the remaining partners have an enforceable option to buy that deceased partner’s share from the beneficiaries and indeed that the beneficiaries have an enforceable option to sell it to the remaining partners. To make certain the funds are available when required, each partner should insure their life in trust for the benefit of the other partners. 

The importance of undertaking this type of arrangement cannot be over-emphasised to ensure the smooth continuation of the business if a partner dies. Shareholding directors of private limited companies are in a similar position as partnerships, and are encouraged to make similar arrangements. 

We can help you to make the necessary agreement and discuss the level of life assurance needed. Please call us. 

The Financial Services Authority does not regulate the writing of wills and some forms of estate planning.