If a business partner dies or becomes seriously ill, their share could pass to someone with little interest in the business — or conflicting aims. Partnership protection is a pre-arranged scheme that gives the surviving partners the funds to buy out that share, or to compensate the partner's family.
What to put in place
- Appropriate life cover — insurance to fund the purchase of the departing partner's interest.
- Suitable agreements — drawn up with professional advice, to keep the partnership going while compensating the partner's dependents.
- Retirement and illness arrangements — clear terms for what happens if a partner retires or becomes seriously ill.
The benefits
Combining agreements, insurance and trusts protects the business from the financial and practical fallout of losing a partner:
- Avoids the automatic dissolution of the partnership.
- Protects against shares passing to hostile parties or uninterested inheritors.
- Makes funds available to buy out the partner's interest at fair value.
- Helps the business stay prosperous through difficult times.
- Avoids a forced sale of assets to settle the departing partner's interest.
- Maintains the confidence of employees and customers.
Important — please note
This article is general guidance, not personal advice. Business protection combines insurance, legal agreements and tax considerations that depend on your specific circumstances, so professional advice is essential. Tax treatment depends on individual circumstances and may change in the future.
For a recommendation based on your own situation, please get in touch.